I don’t like writing posts like this, especially not in the middle of the trading week. I try not to be dramatic and I am going to hold back in this post too. But, I just spent many hours reviewing charts and I am stunned. I have never seen so much deterioration over a few days. I believe there is a tremendous amount of risk to the downside in this market. This situation was not apparent to me when I did my signal work 3 days ago and having this appear so rapidly is concerning. I try to avoid commenting on the market until I have a complete set of weekly data and I went back and forth about writing this post. However, I am making this exception.

Since mid-June I have been less pessimistic about the market and in fact, the HedgeFolios Timing Indicator went positive on July 10th. I have come to trust this indicator when the market has a week that I was not expecting (either up or down.) Maybe it was the pathetic reaction to the FOMC decision or the increasing geopolitical tension or the Alaska oil problem, but I am struggling to put on the rose colored glasses. If the market week would have ended today, I would be changing approximately 750 signals to DOWN. Fortunately, there are two days to change the way things look and I hope that happens.

I have no preference on market direction, but I like to be right and given that I currently have a positive market bias, I would prefer not to see a significant decline. However, I have no ability to impact the market and will take whatever it gives me. We just had a very good earnings season (much better than I had expected) and we finally got the pause and dovish commentary from the Fed. But the market did not respond positively and that is much more important. If we do not stabilize soon or get a strong bullish day, I fear a massive decline. Not a “one-half percent per day” kind of decline over several days, but something more like a 3% day. As much as I like to be right, I’d rather be wrong in this case. Good luck out there.