The stock market is hovering near session highs as we write this post, and the normal Friday pin-the-tape algos are flat-lining price action. But while investors celebrate new all-time highs, the BAM stock Model is once again warning subscribers of an immediate price plunge. Between May 6th and May 17th, we expect prices to cascade lower as the recent price inversion created by machine-induced short-covering is violently unwound. Our “rule of 4” states that market inversions are unwound four times as fast as they originally unfold, and although we’re not going to share the specifics about downside price targets, the price extension we’re tracking has been chugging along for quite some time now. What that implies–and we’ve seen this before when the FED spooks markets into upside price-extensions–is that the decline we’re expecting should surprise the majority with respect to its speed, violence, and downside target level.
If you are bearish, the BAM Model would short the ES (S&P 500 futures market) here today at this level (1611.00) and if you are bullish, the model would take profits here and sit on cash for the coming 2-3 weeks.