S&P’s relentless rise, stretched valuations, growth concerns, “delta” etc., are all reasons for concern. At some point, the market will make a major top. Was last week’s weakness the start of the end? Not yet we believe. While market tops and bottoms can only be viewed in a historical context, and heroic to call, capturing large parts of a trend is a more profitable approach, prompting us to focus on Renko and Heikin-Ashi charts – both of which attempt to cut through noise and focus attention on underlying trends. Trade-offs between sacrificing part of the move vs. whipsaws come as standard.
Inter Market Analysis Keeps Positive Bias
These may be famous last words a week from now! Copper remains has revived an uptrend as have treasury yields (negative for bonds) while Gold has a bearish bias and BTC looks likely to fall further. These support holding the nerve on S&P, for now. Not only is copper bullish in its own right, the copper-gold ratio also suggests a “risk-on” bias. Likewise, the S&P-Gold ratio remains in a strong uptrend.
What’s The Concern? Consolidation Ahead – Most charts, from equities to commodities to yields suggest consolidation (distribution?) before establishing clearer trends. The biggest risk in this environment is getting whipsawed.
Using Renko
In most cases, we use a 1% box reversal on weekly charts (BTC is an exception due to
volatility). What this means is that trailing stops get placed 2% below previous weekly close and new positions initiated on a 3% reversal. Box size choice creates the trade-off between whipsaws and missing part of the move. While this does create whipsaw risk, irrespective of box size, trading all signals ensures that when the major trend moves take place, you capture them. As mentioned earlier, current environment risks whipsaws – but that protects equity and positions for trends as they develop.