Seasonal weakness, September is historically the...

bull markets market regime overview Feb 15, 2021

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On to business...

I've been talking a bunch this week about the equity market taking a breather, specifically the Nasdaq. This is a continuation of yesterdays email. 

As you know, I've been very bullish this entire move up, getting in April 5th and adding relentlessly on every single failed sell setup. Though our main indicator that tells us what market regime we are in was not flashing such bullishness, the price action certainly was. Understanding how to use price action and market regimes together is a super power that indicator chasers don't *yet* understand. 

As we head in to the last week of August, September will likely follow, that's how calendars work! A main feature of August is low volume, low breadth and a bunch of people on Twitter talking about how "uncharacteristic" the low volume/breadth is. Don't get sucked in, that's not true, August is always like that. 

But more importantly September is upon us, AKA the weakest month on average since 1929, of the year. 

This alone isn't something that gives me any reason to take profits on my longs, or go short. But it does give us some context. 


Next we find the $NQ in the Bull Volatile market regime.

To clarify, bull quiet is a conjunction of 2 classifications. First Bull, this is the direction the market is moving (vs Sideways or Bear).

Next we have Volatile (as opposed to Quiet or low volatility). 

This Bull Volatile market regime has some unique characteristics. This regime unlike Bull Quiet is when short selling is allowed again, so the FVBO strategy works well in this regime. This regime is also a requirement to a major market top, but not an indication of one. We can't have major market tops when we aren't in Bull Volatile regime. 

And the final piece is the 3 standard deviation move on $NQ. Nearly all minor reversals, and even major market tops/shifts happen when the market closes the month above 3 standard deviations. 

We will be watching the monthly close on $NQ closely. 


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