In case you are new to DwyerStrategy, and want to see what we have been discussing while the market was seeing a significant pick up in volatility over the past month, we created a summary of key posts throughout the period.  We will continue to do our best to make a great value.

Below is a quick synopsis of our recent posts, starting with the first cautious call in September thru October’s market swoon to Monday’s note detailing the market’s bottoming process…

(1) Starting with “Environment ripe for volatility” 9/17/18 (SPX 2888.8), Tony began warning that increasing volatility – due to high investor optimism and political uncertainties (including Fed rate hikes, elections, trade issues) – was likely to lead to an equity market pullback. In this note, he restated his long-term bullish view but also stated that any correction should prove to be temporary no matter how painful.

(2) On the following day in an email 9/18/18 (SPX 2904.31), Tony further developed this thought:

“…a positive fundamental backdrop can be interrupted with the temporary periods of volatility.  We expect increased likelihood of one of those periods as we approach (1) increased trade war rhetoric with Canada and China, (2) the likely September 26 FOMC rate hike, and (3) the heightened political drama of the US mid-term elections.  The market has made a move to record highs, and volatility as measured by the CBOE Volatility Index (VIX) is again dropping toward the cycle lows, and that opens the door for news-driven pullbacks.  That said, we believe the weight of the fundamental evidence suggests buying any weakness until there is an identifiable recession in sight, which appears to still be at least two years away.”

(3) In “Answering the ‘bullish, but…’ sentiment with EPS” 9/27/18 (SPX 2914) Tony noted that two key indicators (1) high investor optimism plus (2) historically low volatility continued to create an environment ripe for a pullback, although any increase in volatility / correction would prove to be temporary in the face of positive earnings.

(4) In “Correction underway and what signals time to buy” 10/2/18 (SPX 2923.43) Tony cautioned that the stock market was in the process of correcting (based on high investor optimism, low volatility, and global political worries) while noting that it hadn’t showed up in the indices yet. He highlighted some indicators which would cause him to change his near-term cautious stance to aggressive: (1) the percentage of stocks above their 10- and 50-day MAs dropping to 20% and 40% respectively from roughly 50% each; and (2) the VIX moving above 20 from 12.68.

(5) A week later in “October Macro Slide Deck” 10/11/18 (SPX 2880.34) Tony re-iterated his near-term correction call while laying out in detail his four indicators which would signal the beginning of the next intermediate-term leg higher:

  1. The percentage of S&P 500 (SPX) index components above their 10- and 50-day moving averages drops to 20% and 40%, respectively.
  2. The VIX Index jumps to 20 or higher.
  3. The 14-week stochastic indicator drops to 30 or below.
  4. Investor Intelligence percentage of bullish newsletter writers drops to below 45% or preferably 35%.

(6) After the subsequent market swoon, in “Tactical indicators turning positive” 10/11/18 (SPX 2728.37) Tony noted that while his tactical indicators were turning positive, they would not offer a “bottom tick” signal and that the correction could get more extreme.

(7) Four days later in “Whoosh replay – key indicators mostly there” 10/15/18 (SPX 2750.79) he updated his four tactical indicators, while laying out why it was “unlikely there will be a ‘V’ bottom given the sharpness and breadth of the correction.”

(8) In “Environment ripe for a bounce” 10/23/18 (SPX 2740.69) Tony noted his indicators had now reached extreme oversold levels and that the market’s weakness set the stage for a bounce. He highlighted that the market lacked a catalyst for a move higher, leaving oversold “as the only reason to hit a near-term bottom” and that the bottoming process was going to feel awful. He listed three potential catalysts that might change this scenario but felt they were unlikely: (1) Republicans keep Senate/Congress in midterm elections, (2) Fed adopts a more dovish tone, (3) resolution to Chinese trade situation.

(9) Three days later in “Hunting for a bottom in a whoosh” 10/26/18 (SPX 2658.69) Tony reviewed the oversold levels on his indicators as well as the three (unlikely) potential catalysts while adding that it takes “a median 71 days to regain new high ground following a 9% correction” and pushed out his S&P 500 3,200 target into the new year.

Throughout the current market volatility, Tony has continued to re-iterate his long-term bullish thesis in every report. In Monday’s note, he expands upon his near-term tactical view adding VIX rate-of-change and TICK Index to the mix of extreme oversold indicators.

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