The Divergences Are Now Appearing
08/11/2017 2:55 am EST
Active traders should be defensive over the next few days as we could have one more bout of selling in stocks and a spike in the VIX. The best plays right now will be short metals, short oil, long dollar, asserts Chris Vermeulen, of Active Trading Partners.
The loss, of the leadership of the banking and financial sector, KBW Bank Index (BKX) is now a major warning signal which is what is required in order to move the S&P 500 (SPX) much higher, at this time.
The divergence which is currently being seen between the Dow Industrials (DJI) and Dow Transportation (DJT) indexes will be coming into play in the upcoming weeks.
The U.S. dollar has declined to a 52-week low. When stocks have been at a high and the dollar at a low, historically, the SPX showed a positive return within six months to one year, almost without exception. I see support in the 92.50 area.
I would expect to see a very quick “oversold” bounce in SPDR Gold Trust (GLD), then a correction to the 105 to 107 areas as the final “washout bottom” is put into place.
My approach to the markets is to be flexible enough to handle the possibilities of much stronger and weaker sustained trends than what we have seen in our investment lifetimes.
Our portfolio has outperformed the SPDR S&P 500 ETF Trust (SPY) by over 114% this year. Quite a feat when you consider the SPY is up nearly 9% this year and has almost gone straight up since January 2017.
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In short, active traders should be defensive over the next few days as we could have one more bout of selling in stocks and a spike in the CBOE Volatility Index (VIX) I feel the best plays right now will be short metals, short oil, long dollar.