• Hopes on trade issues combined to good earnings will trigger a general bounce this week.

    The markets started weak on Friday, but news of a potential high level meeting regarding Chinese trade issues helped a late afternoon bounce.



    Both the NQ8 and the small caps displayed the same pattern, indicating that this was 100% market based. If this bounce has legs, the small caps will gain more because they have been underperforming. However, if the market does not bounce, the small caps will continue to underperform. This is the way markets work.





    We can see below that the OB/OS signal on the 20DMF closed below -80, which is rather oversold. Hence we should expect a bounce in the coming days.



    The Ratio of sectors on a buy wait mode is also close to the 50% level. This also tells us that a buy signal is coming.



    The NQ8 sector already issued such a buy signal on Friday, but the NQ8 has been the leading sector.



    The question is when will a general market oversold buy signal come after the OB/OS indicator falls below -80? Since March 2009, this buy oversold signal came 2.5 days after the -80 crossover. These stats tell us that we still have time. Probably until Tuesday or Wednesday.

    The Figure below tells us whether it is better to buy on Monday or to buy after a buy oversold signal is issued.

    We can see that both the Blue and the Green lines display positive returns. This indicates that Monday weakness can be bought, but also that the market can also be bought on the day of a buy signal.

    The best strategy would be to buy Monday weakness and continue buying Wednesday weakness.



    The linked article indicates that up to now, the quarterly earnings have been higher than expectations. This means that any rumor regarding Chinese/US trade issues will bounce the markets in a heartbeat.

    http://lipperalpha.financial.thomson...in-earnings-9/

    "Of the 28 companies in the S&P 500 that have reported earnings to date for Q3 2018, 85.7% have reported earnings above analysts expectations. This is above the long-term average of 64% and above the average over the past four quarters of 77%.

    For Q3 2018, there have been 80 negative EPS preannouncements issued by S&P 500 corporations compared to 40 positive."


    Conclusions:

    Buy Monday and Wednesday weakness