2018 Twins?

2018, the year of living dangerously featured a Fed rate hike plan which roiled the markets. Eventually in 2019, Fed backed off the plan (after pressure from DJT) and the market recovered nicely, albeit only to meet Covid lurking around the corner.

A quick list of similar points. a) Strong overbought on MFI. Drop down to the current chart and you see the same signal in November of last year. b) The largest volume bars were GREEN, at least early in the selloff. c) The 200 day moving average provided a test (failed- orange circle) in the second selloff as well as the present chart.

There are some obvious differences in the money flows. A/D pulled back in 2018 and presently it remains in an uptrend, while OBV peaked during the worst of the selling, and is currently in a long downtrend. On the face of it the strength of long term money in the currency selloff is a mixed blessing. This indicator of money flows is nearly always positive. The OBV which is intermediate term is negative as it was in the second half of 2018. So far the similarities to the second half of 2018 seems more consistent. The MFI basically stayed inside the channel that entire year after the overbought was a sendoff signal.

This is something of a compressed version of 2018, looking very similar at the beginning and the end and even in the middle. The farther his mirror proceeds the more we look to be in the last stages of 2018. (Everything on the other side is blue sky by the way) To fill the form out a drop in A/D, or institutional capitulation is needed. (Something I mentioned earlier) And the twin trend lines in A/D will converge sometime in July. That should either provide the lift needed or spring the trapdoor that will precipitate a washout.

At this point the SPY is 50 points below the 200 dma, (and down 12%) while in the 2018 deep V the spread was 40 points but 15%. So we are pretty close to that or maybe 377. The fact that A/D has not backed off, and may not, is fairly positive for the financial condition of the markets (despite whispers about liquidity issues going around. A sudden drop would make the two charts more commensurate, and introduce a new element of risk). The three money flows in concert do not make the case for a sustained rally at this point.

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