I $SPY A Doji: Why You Should Expect A Near Term 6% Market Sell-Off

I spy…with my little eye…a doji. What’s a doji? A doji is a candlestick that often marks a reversal in trend. Doji’s are characterized by a virtually equal open and close, and a high conviction reversal doji tends to have an equal top and bottom wick. A doji candlestick is bullish when it occurs at the bottom of a downtrend, and is bearish when it prints at the top of an uptrend. Enter the first week of 2020, and we’re greeted with a near perfect weekly doji (highlighted in yellow).

Let me be clear: I am bullish in my long term accounts on U.S. equities, and am positioned that way. I think the millennial cohort will drive the U.S. economy higher for the next two decades. Despite being long term bullish, I am short term bearish, and am anticipating a 5% - 10% correction sometime in Q1 of 2020. I expect the sell off to find support at old resistance, marked on the chart above. Have your buy-list polished, ranked, and ready once the selloff arrives (click here to view mine).

The above referenced doji, in combination with yesterday’s CNN Fear/Greed reading, an overbought S&P 500 (RSI), and the fact that the S&P 500 is trading 10% above its 200 day moving average, solidify my conviction of a near term correction.

While the CNN Fear & Greed index is often mocked, I think it's a useful sentiment gauge. Riddle me this, if it was smart to buy stocks on December 24th, 2018, when the index printed a reading of 4, is it smart to buy stocks when the reading hit 97 yesterday?

What will the narrative be that drives the sell off? That, I don’t know. But what I do know is that price pays, which is what I focus on. I can guess that the media will find a narrative to fit the imminent sell off. Maybe they'll blame an escalation in middle east tensions, or maybe its delayed tax selling in Q4 spills over into Q1 and creates unexpected selling pressure, or maybe it will have something to do with the upcoming 2020 Presidential election. Whatever it is, I’ll be prepared, with an actionable plan ready to go. What about you?


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