There was a potentially critical warning sign from US stock markets this morning that those holding equities may want to pay attention to.
In charting terminology it’s called a Key Reversal but it simply describes a failure from record highs.
In overnight trade last night, the Dow and the S&P both set all-time record highs only to fall this morning on weak US manufacturing data and increasing trade tensions. The resulting weakness took those indexes below the previous days low. This type of action will often feed upon itself as it’s a sign to reduce risk or exposure.
On a daily basis from such an overextended market it would be concerning. The real problem is it has resulted in the same pattern on the weekly chart with this morning’s high above last weeks high and the current price being below last weeks low (for the Dow and S&P). Should the week end here or lower, the reversal pattern would carry far more weight and potential implications.
Given it’s the first day of December, it does set up the same possibility on the monthly chart if further weakness unfolds. That said, it’s far too soon to predict such a development. Just something to keep an eye on.
With portfolios having such a long term development process and being such a difficult thing to just give up on, it is important to remember put options are available for downside price protection in equity markets as well. They give you the right to be short (as a hedge) but not the obligation. If one buys puts for insurance and stocks turn back up, all that is missed out on is the cost of the insurance (the put option premium).
Just a thought…
In charting terminology it’s called a Key Reversal but it simply describes a failure from record highs.
In overnight trade last night, the Dow and the S&P both set all-time record highs only to fall this morning on weak US manufacturing data and increasing trade tensions. The resulting weakness took those indexes below the previous days low. This type of action will often feed upon itself as it’s a sign to reduce risk or exposure.
On a daily basis from such an overextended market it would be concerning. The real problem is it has resulted in the same pattern on the weekly chart with this morning’s high above last weeks high and the current price being below last weeks low (for the Dow and S&P). Should the week end here or lower, the reversal pattern would carry far more weight and potential implications.
Given it’s the first day of December, it does set up the same possibility on the monthly chart if further weakness unfolds. That said, it’s far too soon to predict such a development. Just something to keep an eye on.
With portfolios having such a long term development process and being such a difficult thing to just give up on, it is important to remember put options are available for downside price protection in equity markets as well. They give you the right to be short (as a hedge) but not the obligation. If one buys puts for insurance and stocks turn back up, all that is missed out on is the cost of the insurance (the put option premium).
Just a thought…
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