The Tide is Turning
In the previous edition of the Weekly Compass last Sunday, I anticipated that overheated conditions were becoming more serious based on an objective $Cboe Volatility Index(VIX)$ analysis. The approach made an essential difference against the famous adage, “overbought can continue overbought” a view often held by newbies or those who focus only on daily charts, while the real signals emerge on the weekly and monthly timeframes (posted for premium subscribers).
Also last Sunday, I mentioned how human emotions work, citing the example of the 2020 market, which continued to move up for two weeks despite the initial COVID news. As highlighted then, I do not expect a pandemic crash but a healthy pullback, based on documented studies presented to premium subscribers.
By now, you’ve likely read extensively about tariffs, Semiconductors, exports, Trump, China, and perhaps the government shutdown during the weekend. As was the case during the crash in March and April, you can expect my analysis to focus on price action and technical indicators; the news essentially serves as a trigger.
Regarding Specific Securities:
Last Sunday, the Weekly Compass anticipated that a significant overbought level had been reached for the $S&P 500(.SPX)$ in the weekly chart, also the imminent breakout for the VIX based on the weekly chart as well using other two indicators, the $NASDAQ 100(NDX)$ also was showing a bearish divergence with an oscillator that I use mostly in the premium content, and among all the indicators I did post for everyone a signal that the $Dow Jones(.DJI)$ was providing suggesting a decline, the shooting star was once again proven true. (Spoiler alert, there is now a huge weekly shooting star for $NVIDIA(NVDA)$ )
Securities like $iShares Russell 2000 ETF(IWM)$ and $Apple(AAPL)$ were due for a healthy pullback, I mentioned that an immediate overextension as it happened with $Alphabet(GOOG)$ $Alphabet(GOOGL)$ and $Microsoft(MSFT)$ was unlikely since the market conditions were overbought, similar to $Netflix(NFLX)$ $Meta Platforms, Inc.(META)$ $Palantir Technologies Inc.(PLTR)$ when they soared rapidly months ago.
Technicals don’t matter until they do, and as mentioned in previous notes, the longer the market continues overextended, the pullback can be more sharp. The move on Friday wiped out four weeks in few hours, proving that patience is key, and when using the support and resistance levels you have an additional edge to consider a reversal is in play. During previous weeks the central level wasn’t breached deeply for the SPX, NDX, and DJI, but on Friday it happened with significant conviction.
Here’s the price action overview for the week that just concluded for the SPX components:
Every security analyzed here has a central weekly level with bullish / bearish targets according to the setup:
I have charted several securities analyzed in this publication during this week, incorporating the levels to demonstrate how a buy-and-hold strategy can be enhanced by initiating buys upon the recovery of the central weekly level and executing sells when that level is lost. I provide these levels weekly to manage risk, and charts like this one can be consistently validated against my Friday publications.
The blue line represents the central weekly level forecasted each Friday, while the black line denotes the next support zone, also provided with the central level. My previous backtesting for $Invesco QQQ(QQQ)$ $NVIDIA(NVDA)$ $S&P 500(.SPX)$ $Apple(AAPL)$, used the blue line as the “line in the sand.” However, this backtest (like the one posted for $Tesla Motors(TSLA)$ on Wednesday) uses the next support zone (the black line) as the exit rule. The results, assuming a $10,000 investment, are as follows:
The Buy-and-Hold approach yielded an ROI of +26%, resulting in a final portfolio value of $12,615 from a $10,000 initial investment. While this strategy is simple and captures the full long-term trend, its key disadvantage is the full exposure to interim volatility and drawdowns. In contrast, the Active Buy/Sell strategy significantly outperformed with an ROI of +34%, reaching a final value of $13,048, an 8% difference. This active method’s advantage lies in its ability to buy dips and sell peaks validated by the use of levels for compounded gains, thereby reducing risk in market drawdowns.
For whom haven't open CBA can know more from below:
🏦 Open a CBA today and enjoy privileges of up to SGD 20,000 in trading limit with 0 commission. Trade SG, HK, US stocks as well as ETFs unlimitedly!
Find out more here：
Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.
