EB Daily Market Report - Quick Update - Friday, July 14, 2023

It's the kickoff to earnings season today with key earnings reports released by JP Morgan (JPM, +0.28%), Wells Fargo (WFC, -0.55%), Citigroup (C, -3.53%), and Unitedhealth Group (UNH, +7.36%). We saw nice earnings surprises by the 3 banks - all well ahead of expectations - but after early gaps to the upside, all 3 have been selling.

Personally, I'm growing more and more nervous in the near-term and have moved a substantial amount to cash. Let me be clear. I'm trying to time a short-term top and buy back in cheaper in the next 1-2 weeks. I am NOT shorting. If you want to take on that risk, that's completely up to you. I do not like to short a secular bull market advance. And we might not see any selling. But here are the short-term reasons why I'm nervous:

• Negative divergences across all of our major indices on their daily charts (NASDAQ particularly vulnerable, in my opinion)
• 5-day moving average of the equity only put call ratio ($CPCE) has moved beneath .50, the lowest level since March 2022 (significant market top)
• Overbought conditions (RSI on both SPY and QQQ above 70)
• Max pain (options expire next Friday and there is already a TON of net in-the-money call premium)
• 2nd worst week of the year historically begins at Monday's close

If you want to continue on the long side and go with the flow, I completely understand that. I'd grow more bearish short-term if a reversing candle were to print on the daily charts with those negative divergences in play. Maybe that happens today, maybe it happens next week sometime. A heavy-volume, bearish engulfing candle would be problematic, although a shooting star candle or a doji could also present a warning.

Here's a chart of the CPCE and you should be able to clearly see the risk of holding long positions right now:

Listen, I could be totally off. Calling the stock market short-term is much trickier than calling it long-term, in my opinion. I REALLY love stocks right now, and I remain very bullish stocks throughout the balance of 2023 and into 2024. Simply holding through any short-term weakness probably makes sense for most traders/investors. I'm a little different trader, however, so I constantly monitor upside potential vs. downside risk and I'm just seeing too much SHORT-TERM downside risk. Accordingly, I'm lowering my exposure. I am totally fine if I'm wrong and have to re-enter at higher prices. That bothers a lot of folks psychologically. That doesn't bother me.

I definitely could see a scenario where we move higher over the next couple days to a week, but we usually see an options-related impact as the net in-the-money call premium grows. Personally, I've enjoyed very nice returns throughout 2023 and I'm comfortable with much less exposure right now. If I can get back in cheaper, that'd be awesome. If not, that's ok too.

I will be updating many ChartLists over the weekend and we should have those updated on our website by Monday morning.

Wishing everyone a nice weekend!

Happy trading!

Tom