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Cash Works If You Let It

May 23, 2019

From the desk of Tom Bruni @BruniCharting

One of the hardest things to do in life and in markets is admitting you don't know. But when you're only in the market to make money, and not to be right, saying I don't know can often be the best answer.

That's why I put out a post titled "Relatively...Confused" just two days ago because when I go through my chartbooks I see extended themes that are not offering great reward/risk opportunities right now.

Cash and Bonds continue to work, but rather than write another piece on that I think it'd be more constructive to discuss the things I'm waiting to see before getting more aggressive on either side of the market.

You can find the past posts we've written about heavy cash positions here: (October, December, March).

First, we need to see an increase in the number of global markets and US sectors & subsectors above their 2018 highs. Or we start to see a sector take leadership to the downside, which I still haven't found yet. Energy, Materials, even Biotech if it gets hit are not going to move the needle in the major indexes due to their small weightings.

Until either of those things happen, the trend is sideways at best.

Next is the direction of Oil, which has been moving in lockstep with the S&P 500 since October. I'm watching this 55.50-64.00 range as which direction it resolves should have implications for US Equities.

Intermarket wise I'm watching the ability of Yen and Bonds to hold above their March highs, as that would signal a continued defensive posture from market participants. The same can be said for all of the equity market risk barometers we track like Consumer Discretionary vs Consumer Staples, High Beta vs Low Volatility, and Staples/REITs/Utilities relative to the S&P. It cannot be ignored that Utilities and REITs are one of the few areas of the market still above their former highs.

You can throw Small-Cap and Mid-Cap performance in there too.

US Stocks are finally experiencing the weakness we've seen in global markets over the last few weeks. Look at the Value Line Geometric Index making 14-week closing lows, the Russell 2000 clinging to support, etc.

As a result, I think it's prudent to be watching those markets for signs of a bounce and seeing what develops.

We are already starting to see some bullish momentum divergences form as prices make new marginal lows. I don't see enough to suggest we're there yet, but I also don't see a great reason to be short on an absolute basis either.

It's just messy. And messy environments have a habit of destroying your physical and emotional capital, making it harder to capitalize on the trends that do eventually develop.

As we head into a long weekend, remember that cash works if you let it. I'll be using this less active time to work on longer-term projects and reassess the weight of the evidence with new weekly closing prices and a fresh mind.

In the meantime, if you need anything let us know. 

Enjoy your weekend!

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Allstarcharts Team