We had a Day 4 Follow Through Day (FTD) on Tuesday, May 17th for the Nasdaq Composite and S&P 500. For more information on the definition of a FTD and to see historical examples, you can review Video 2B in the “Seminar Videos” section of the website. While a FTD doesn’t automatically mean we have bottomed, they are important because no new low has been made without one.
When we had a FTD on January 31st of this year, I immediately emailed members that it was likely to fail. The main reason is there were no stocks setting up. This time, I’m 50/50, but my instincts tell me to remain defensive. The only reason I am a little more open-minded this time is because I’m noticing a few stocks slowly start to set up and some of the recent names I discussed are working (ALB, LTHM, PRCT, OXY, DVN, CELH, LNTH).
The main reason I am defensive is that the Fed is still hawkish. In an interview on Tuesday, Fed Chair Powell said: “We need to see inflation coming down in a convincing way. That is what we need to see. Until we see that, we are going to keep going.” In other words, let’s not forget the overall backdrop that the Fed is still raising rates and taking liquidity out of the system. In addition, regarding the FTD, it did not occur on above average volume, nor did it get us back above any key moving averages. Again, I am open-minded that we may have bottomed, but my instincts tell me to remain defensive until the market proves itself better. I will discuss this further in tonight’s MidWeek Video. Good luck this week, keep things light, and please remain patient.