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Two weeks ago, on Saturday March 6, I announced “The Bounce Is Here” based off of the intraday reversal on Friday March 5. At the time, I believed that the bull market was over but that bulls would stage a ferocious rally on the premise that this was another buy the dip opportunity in an ongoing bull market.
I played the bounce via a 10% position in the Ark Innovation ETF (ARKK) from Monday March 8 through Thursday March 11 (scoring a nice profit) when I flipped it short (15% of Long/Short portfolios) along with QQQ (7%), SMH (7%) and IWM (7%).
This Thursday I was rewarded when 10 year treasury yields surged above 1.7% overnight in Europe and into the US session in the wake of the Fed’s dovish stance, pummeling stocks. Which raises the question: Is the bounce over? This question presupposes that the move from Friday March 5 through Wednesday March 17 was just a bounce. While that hasn’t yet been confirmed to the extent I need to see by price, that is my interpretation and, obviously, Thursday’s action lends weight to it.
Technically speaking, the QQQ, my proxy for what I call Mega Cap Growth, and ARKK, my proxy for what I call Speculative Growth, did not repair the damage caused by the three week selloff that started in mid-February. A number of bullish technicians tweeted anxious NASDAQ-100 charts yesterday (Friday).
The category that has not rolled over yet and has been carrying the market is what I call Reopen Value. (The final category that I break the market up into is Defensive Value but these stocks by nature underperform during bull markets and hold up well during bear markets; they cannot lead a bull market). The IWM is my proxy for it and while I realized that I’d shorted it prematurely two Thursdays ago, I held on to it on a gut instinct that it is topping as well and got lucky during Thursday’s drubbing.
While the IWM still looks solid technically, Energy (XLE), one of its underlying leaders, stumbled last week down 7.54% and closing below its 21 DMA for the first time since early February. The other leaders of Reopen Value, the Financials (XLF, KBE) and the Industrials (XLI), are still holding up technically.
My short here, therefore, violates my rule of waiting for what appears to me to be “unrepairable” technical damage and shorting the subsequent bounce. I’m doing something that breaks my own rules and I don’t recommend: I’m relying on my gut instinct rather than waiting for price confirmation. However that may be, if I’m correct the last leg underpinning the bull market is being kicked out leaving it with nothing to stand on.