Two Weeks of Risk, Very Little Reward

This week the S&P 500 gained less than 2 points (1.86); the Dow lost 11 points, and the NASDAQ dropped 2 points over the past five sessions. Could stocks push higher? Yes – we will touch on that topic in this weekend’s video.

Going back two weeks, the S&P 500 has gained a total of 6.62 points, the Dow is down 28 points, and the NASDAQ is up only 12.9 points. We all know the gains made in the last two weeks can be “taken back” by the markets in the in the first minute of trading on Tuesday. Having a high cash position over the last two weeks has provided us with a great risk-reward bang for the buck.

We will enter next week with an open mind. We are continually looking for good risk-reward opportunities. The fact that we cannot find many (or any) at this time tells us something about the entire market’s risk profile (unfavorable).

When the technical picture is most favorable the bars on the weekly S&P 500 chart below are shown in green. When market internals begin to deteriorate, the bars turn blue. Notice how the S&P 500 acted in the weeks following points 1 and 2. Even to the left of 1 stocks rose after a blue bar, but they also gave back 100% of the gains in the following weeks and months. The bar turned blue again this week. Can stocks move higher? Yes. Are the down side odds increasing? Yup.