Monday, May 16, 2011

S&P 1340 Continues to be a Magnet, and S&P 1330 Continues to be a Floor

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This morning there was a nice risk-reward trade on the long side as 2 levels of support existed.  First, the lows of two weeks ago that I highlighted last week (S&P 1329) and right below that the 50 day moving average at S&P 1327.  A move below both of those would definitely be bearish but going long just above creates a nicely defined trade.  If it works against you, you take the small loss and move on.  This is a very short duration trade since we're in a massive chop fest and if support breaks, we're prone to a woosh down here.  Thus far the index has bounced about 0.65% versus the morning's low of just below S&P 1333 as we continue to hover around 1340.



You can also observe this morning's low has been effectively the same level of the intraday low the past three sessions.  So for now we remain range bound in about a 20 point S&P range, with a lot of choppy action dictated by currencies, and not much to do other than take short term trades.  In a normal era for markets I think the bears would feel emboldened as many of the momo names have broken down, the commodity trade has been flushed aside from dead cat bounces, and we've seen a rotation into defensive names of late.  However, anyone who has doubted the market's ability to pull off a V shaped low volume bounce the past few years has been continuously smashed in the face.  So there is reticence is using the pre 2009 playbook, and instead one is wary of yet another V shape to begin at any moment.  Recency bias at its best.

The wildcard remains the dollar which has fallen back sharply today and is again pegged against its own 50 day moving average.  It is disappointing action for dollar bulls, considering the 'breakout' Friday - but the case is not yet closed on the greenback.  It has been a huge move in a week and a half, so some resting is normal. (one day delay on the following chart - current price $75.30)



As an aside, I mentioned Sina (SINA) this morning - with today's bounce that filled an upside gap, I'd have attempted a short with entry in the $112-$113 area to see if we can reach $100 in the coming week or two, with stop out over $115.  You have the 50 day moving average as a resistance to potentially help out the bear case.



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