Don’t Fight The Tape

Chart and Transcript

Good afternoon, everybody. The S&P 500 just closed at another new all-time high on the back of some trade optimism, and while I’m enjoying the melt up, there are some anxious for a pullback. In my opinion, it makes a little bit of sense. Q3 is seasonally difficult, with September being the worst month on average for stocks over the last 5 years. However, for those actively looking to make money on the way down by buying puts, inverse ETFs, or going short, know that you are fighting a very strong tape that isn’t showing any cracks.

To illustrate this, I’m going to pull up a chart of the S&P 500 year to date using only the 5-day and 13-day EMAs. What you’ll see is that in green are instances in which the 5-day overtakes the 13-day. This is considered a buy signal And red is the opposite. And I have one instance in orange in which you had a buy signal quickly followed by a sell signal, meaning you would have been in and out, probably with a slight loss, but, you know, would have been less than 1%. So…

Let’s summarize how you would have done by following the 5 day and the 13 day EMAs in a vacuum. You would have made a quick profit to start the year, as you can see from the first green circle to the red circle, which would have actually got you out ahead of the tariff tantrum. We’re going to quickly skip over the whole in and out thing in the orange. And then you would have got back into the S&P 500 at 5300.

and from today’s close around 63.15 or 6350 you’d be up 20%. Now, I’m not saying that a pullback isn’t inevitable. I happen to be in the camp that there is going to be some sort of digestion, some sort of hiccup in Q3. But this exercise suggests that allocating for that pullback right now is premature. Don’t fight the tape. When you’re buying puts, when you’re shorting, being early is the same as being wrong. Thanks for listening.

If you’re still here and liked what you read, could you do me a favor? Consider subscribing to my website by signing up below for insights delivered directly to your inbox. If that doesn’t suit your fancy, consider dropping me a follow on LinkedIn, or sharing my work. Thank you for reading.