Yesterday's mid afternoon anticipatory buyers are currently caught as indeed that rally was a fake out. My goal of reaching S&P 1070 was essentially hit as the market swooned down to 1071.
At this point I am treating the market identically to how I viewed it in the second half of May; one big range divided into two sub ranges. The big range being 1040 to the 200 day exponential moving average (let's call it 1100) i.e. 60 points. 1070 seems to be the dividing point because that mirrored Dow 10,000 in May... wheras now there is some variance as the Dow has outperformed the S&P 500 (i.e. S&P 1070 = Dow 10,075 or so). Either way, the 2 sub ranges will be 1040 to 1070, and 1070 to 1100. As you get to the lower end of that sub range the thinking is to lighten up on short exposure and then pounce if you break to the lower end of the other sub range... i.e. lighten up near 1071-1072 and then remount if the market breaks to 1068 and press for a move to 1040. Or if one wants to be very aggressive, you can even go long as we come into the support of 1070, trying to catch an oversold bounce nearer to 1100.
[click to enlarge]
I prefer to play the primary trend (which is down), rather than to get very cute and try to catch both the up and down moves since it just increases the degree of difficulty and opens up more chances for mistakes. But as we type, we are sitting at the low end of subrange #1. Either 1070 holds or does not. A very aggressive player would lift shorts here and try to play a bounce I suppose, with a tight stop just below 1070. I would have much preferred to see a big down open today to shake everyone's hopes as that would have been a good place to trying some long side forays, at least for a quick trade. But with the up open, it's just "meh" as we are in the middle of the 60 point range. We can go up 30 S&P points from 1070 and still it would mean nothing, while 30 points down just takes us to the long term support.
The market is having a terrible week, down about 4% and trading in yet another huge weekly range of 60 S&P points. Just as we have in many of the previous 3-4 weeks. Completely bipolar action and impossible to build intermediate positions in this environment.
Longer term, caution reigns again as long as we're below the 200 day moving average(s). That does not mean necessarily to be all out short or try to score a 10% win for the portfolio on the downside. It means capital preservation as first priority and monetary gains on top of preservation is the cherry on top. Making up a 3% loss is much easier than a 13% loss.
Prone for an oversold bounce yet again? Surely the odds increase after such a large drop. Financial 'reform' is now done, so its off the table as an uncertainty and now the oligarch's lawyers get to work, running circles around the 1900 page document and effectively neutering it. G20 meeting this weekend where much hot air will be circulated.... hopefully won't melt the polar ice caps further.
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