September 25, 2022

Recent comments from Fed Chair Powell spurred market participants to discount a deeper recession last week than was otherwise baked into the cake.

This has both Nasdaq and S&P 500 zeroing in on their June lows with aplomb.

From the S&P's primary top in January through June's low, the loss has been 24.5%. This is not the type of decline normally associated with an economy showing 8% consumer price inflation. In other words, up to this point, the market has been giving the Fed the benefit of the doubt as to whether it can engineer a soft economic landing.

Specifically, stocks have not discounted a stiff recession, but more of a mild recession.

Consider that the mild bear markets of '11 and '18, in which the S&P corrected by 21.6% and 20.2%, respectively, occurred with no recession or worrisome inflation at all.

Thus, we knew that once the market caught wind of the likelihood of a more-severe recession, prices would likely be marked down further. This has actually been transpiring for weeks. It is just in recent days that Powell has been talking about "pain" being something that may not be avoidable. This has brought more sellers out of the woodwork.

Otherwise, all subscribers should be in cash, save for those positions that act well and do not show signs of technical breakdown. As a heads-up, one of them, Cal-Maine Foods (CALM), is expected to release earnings Tuesday at 4:05 p.m. ET. The stock is up 5% since triggering.

In summation, the market is paying the piper for not discounting a stiff recession previously. This is transpiring now as the Fed starts using terms like "painful" to describe what may occur to the economy. On the bright side, markets are discounting mechanisms, and will almost always be ahead of changes in the backdrop. So any recession's end will likely be priced in well ahead of time.

System Seven

I have done additional testing in order to differentiate between an "A" grade setup vs. a "B" grade setup and a "C" grade. "C" setups will never be used. In this particular system, there is not much difference between an "A" and a "B," thus high "B's" might be used, i.e. a "B+."

There have been a few days in which only long signals occurred. These were not used due to the down market. Since Sept. 13 when the S&P dropped below the 9 ema and 20 ema, there have been three short signals. These signal bars are highlighted below with entry being a tick below the low of the signal bar.

All three setups were negated due to price gapping past the entry pivot. If one were to use a back-door entry, the first would be a winner, the second negated, and the third in profit.

Kevin Marder

Trading Lessons
Introduction to the service (38:00)
Money management and risk management (20:27)
Bread and butter pullback (11:10)
Bread and butter pullback: Pt II (15:09)
Bread and butter pullback: Pt III (31:48)
Bread and butter pullback: Pt IV (30:16)
Bread and butter pullback: Pt V (1:41)
System R
Short-selling (25:53)
Wyckoff spring reversal (2:30) 
5-minute breakup test (8:01)
Screens (21:03)
The Income Model