The HCM-BuyLine® came close to a trend change last Monday after the flash crash. It did stop us out of several positions as our walk behind, HCM Pivot Points® was hit, bringing us to over a billion in cash. Has the market bottomed? In all probability, yes, but there has been a lot of technical damage done, and it will not repair itself fast. We should see a retest of the lows seen on 8/5. The market is about to hit a point of resistance, so patience is needed at this time. We might not see a total retest, but the market should pull back for a period as investors catch their breath and evaluate the situation.

We are being patient, and we will let the market pull us back in when a new HCM Pivot Point® emerges. There are a lot of options that will present themselves as the selloff brought a lot of stocks down to very attractive valuations.

Last week’s flash crash tightened financial conditions. The meltdown was primarily caused by the unwinding of the carry trade following central bank decisions the week before. Stress rose due to the unwind of the carry trade. A lack of liquidity in the banking system and in trading markets added to the outsized moves.

The jump in the Financial Stress Index was almost solely due to “Other Advanced Economies” like Japan. That means the spike in the FSI was due to the unwinding of the “carry trade,” where traders would borrow in yen and invest in risk assets around the world. Traders were simply overexposed to carry risk.

Health Care Sector (IYH) is setting up nicely; some health care stocks that look strong are (REGN) Regeneron and Eli Lily (LLY). Also, real estate has held up strong and looks ready to break out. VNQ is the Vanguard real estate ETF, and it also looks ready for a breakout. Lower interest rates will help real estate with lower cost to own property increasing earnings.