The Day the Earth Stood Still

by Jeffrey Saut of Saut Strategy, 8/7/19

Quote: Professor Barnhardt: “You say we are on the brink of destruction and you are right. But it is only on the brink that people find the will to change. Only at the precipice do we evolve. This is our moment. Don't take it from us, we are close to an answer.”

. . . The movie “The Day the Earth Stood Still,” 2008

And that was the ubiquitous question we were asked yesterday. Have we changed? Have circumstances changed? Our answer was, “Maybe.” With what the PBOC did in basically resetting the U.S. Dollar/ Renminbi exchange rate, it suggests the trade war is going to go on for a lot longer than most anticipated, including us. We also now run the risk that the President responds by starting a “currency war.” Anyone that studies the history of currency wars knows that NOBODY wins in such a war! Responding to the huge amount of emails that lit-up our email box ([email protected]), there has not been a Dow Theory “sell signal.” As for the question about a “sell stampede,” it was back in the 1970s when we first observed that Buying/Selling stampedes tend to last 17 – 25 sessions with only 1 – 3 session counter trend moves. It just seems to be the rhythm of the thing in that it takes that long to get everybody bullish enough to make a trading top or bearish enough to make a bottom. While it is true some stampedes have extended for 27 – 30 sessions, it is RARE to have one go for more than 30 sessions. If this is a “selling stampede,” today is only session 5. However, it is too soon to tell if this is a “selling stampede.”

As stated in last week’s Monday missive:

“We have used that target price of 3200 pretty much all this year and have not had to raise said target price, at least not yet. Yet it is true the SPX has run into another potential overhead resistance.”

We added the stock market is short-term overbought, but any pullback should be mild. In yesterday’s missive, we wrote:

“The S&P 500(SPX/2844.74) knifed below our envisioned 2940 – 2960 support level to close last Friday at ~2932. The next support level is at 2870 – 2900 with a point and figure short-term trading target of 2870.

Quite frankly we do not think that target will be touched, but if last Friday’s intraday low is violated (~2914), that target zone becomes a real possibility.”