This week is a bit different than most. First, we have very few companies reporting earnings. Second, this week is triple witching week (TWW). Third, we have traders and investors scrambling to react to the 2-3% drop in the market on Friday.
Is this a buying opportunity? Should we sell before the market drops further? At the moment, the best gauge of the market is the futures market, which is in the red and predicting another 1% drop at the open.
This is important. Statistically, a down Friday followed by a down Monday often points to a market top. In other words, we should see Monday as a selling opportunity or a short opportunity.
Of course, the Fed will and must inject liquidity into the market if we see a decline of 10% total. But the 10% pullback, if witness via put options, can be especially profitable for short-term traders. Investors should be looking for the bottom of this pullback to seeking buying opportunities.
Oddly enough, this week is seasonally bullish, as are most TWWs. But TWWs are also typically followed by bearish pullbacks. However, during non-bull markets, TWWs lose their bullishness and tend to be bearish!
Thus, the down-Friday, down-Monday possibility during this TWW is a strong indicator – statistically – that we have hit a market peak. At the very least, we will see this season’s pullback. As every season seems to have a rally, so does it have a pullback.
This season’s rally was in July. Timing-wise September seems to fit in the seasonal trend of “2 steps forward, 1 step back.” However, the fear is that with the other indicators perhaps we are to be taking more than 1 step back.
Again, Monday is the key here. If it’s down, we have a signal to position for the downside. But Monday has one event that could turn the market around: Brainard is speaking.
With the Fed no longer pretending to be unbiased toward market direction, Brainard is likely to give a dovish speech. The rate hike will be postponed, just as it was last year despite the Fed claiming it would be raised in September (history repeating itself…). If so, we can expect a bump in both the market and in gold prices.
Thus, we have a tug-of-war: Momentum vs. the Fed. But the latter is the only of the two open to interpretation and prediction. As for predictions, the very fact that Brainard is speaking on such short notice be taken by investors as likelihood for a hawkish statement that reiterates the Fed’s plan to raise interest rates.
Still, the Fed is more likely to act in alignment with its not-so-hidden agenda to stabilize the market. That is, Brainard will issue a dovish speech, and the market will rebound.
In the end, the tug-of-war between momentum and the Fed will determine Monday’s candlestick color. A red should send you to position for a top. Make sure you’re able to hedge your positions before Monday’s close.
Disclaimer: As always, consult your financial advisor or stock broker before making investment decisions and DO NOT base decisions on this website which is here for entertainment purposes only.