The trend momentum remains a strong 70% uptrend.
The first chart below shows the usual trading pattern when in high risk blow off bull years – which is the phase of the bull/bear cycle I believe we are in - overlaid over some past blow off bull years, with the white lines to the left of the chart the NASDAQ for 2017.
The starting rally usually hits the 5% to 10% level on the year before sliding in a correction.
The middle rally usually hits the 15% to 20% level on the year before sliding in a correction.
The final rally usually hits the 25% to 30% on the year before sliding in a BIG correction that often starts new bear markets, often including a crash.
We are currently at the 13% level for this year for the NASDAQ, closely matching performance of 1987 (purple line.)
For obvious reasons, we need to keep a careful watch on this set-up as the year progresses, as profits could be massive for us if this relationship continues, which is likely.
The above analysis calls for the rally to accelerate over the next couple of weeks, and a positive outcome with the French election this Sunday could provide the stimulus for such a continuation of the recent breakout push.
The dotted red line projection in the next chart is the likely path forward should reaction to the French election be negative, or a rally non-event, where traders and algos jump on board selling the election result fact, after buying the rumor of a favorable outcome.
Trading news events is near impossible with any degree of success, thus we will continue to follow our indicators, which have done a terrific job so far this year of keeping us on the right side of what is likely a bull ending blow off rally event.
The red arrow is the likely fate once the expected staggered melt-up bull topping process completes, and the next great bear begins.
We were looking for a blast off to new highs for the NASDAQ in May, and the stock indexes played nice with that expectation. Now the prime question is just how high we go before everyone is “all aboard,” and on the expected follow on pain begins?
For now, holding longs, while hedged, remains the optimal allocation.
NASDAQ 6200 remains our target, and we will publish a Flash Alert Update 3pm eastern time any day the NASDAQ challenges that key level, with QQQ and QLD exit trades to be executed going into the close that day.
Current positioning for the Index/Hedge/VIX portfolio remain 94% QLD, 5% TZA, 1% TVIX.
The 401K portfolio is in a stock index mutual fund, with QQQ used for performance tracking purposes.
Performance-wise, the 401K portfolio rose 1.14% on the week, and is currently up 16.61% in 2017.
The Index/Hedge/VIX Trader portfolio rose 2.15% this week, and is currently up 30.77% in 2017.
Next update after the markets close Monday.
Have a great weekend!
Chief Trading Strategist
Portfolio Update Archive