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I’m selfish, impatient, and a little insecure. I make mistakes, I’m out of control, and at times hard to handle. But if you can’t handle me at my worst, then you sure as hell don’t deserve me at my best.

Marilyn Monroe

This week’s COT index remains positive at +8.3%, increasing slightly from last week.

Last week the initial dip was bought, but, continued weakness brought the SPY back down through that support area.

Technical

All short time-frames have now turned bearish from 3days to 15days. The support line in the SPY has also been broken. However in breaking through support, the break is now somewhat over extended [oversold] and we can expect potentially a bounce trade against the short term trend.

Another way of saying the same thing is: before going short, wait for the trade to develop and sell resistance. To the pessimistic, resistance will be found at $181 – $182. I think however that I would be looking at $184 to be safe[er] in this market.

So what has changed?

Nothing really except that the market has decided to pay attention to the various bearish aspects of markets around the world. China is slowing, but has been slowing for some time. Earnings have been particularly lacklustre and weaker than many expected. With an already lowered bar, missing now has far deeper implications for valuations going forward. Thus a moderately priced market starts looking like an expensive market.

But really, most of this is old news, or has been ignored in the past. The Federal Reserve is expected to further reduce bond purchases next month – yet, the yield on the 10yr fell last week, which, should have made stocks more attractive, except that the money flowing to bonds came from stocks.

So, returning to the market, Everyone is looking at $170 as the line in the sand as far as the uptrend is concerned. In an algo driven market, all liquidity points are virtually guaranteed to be hit, so $170 more magnet than line in the sand. The goal is to test a significant level and free up liquidity to trade around. After all the stops have been triggered the idea they’ll figure out if there are still more sellers than buyers. If so, expect the next area to be tested. If buyers push back hard, then we have a false breakdown. One or the other (or some combination) will occur, but we won’t know much until we get there and watch it play out.

Internals

Breadth is still intact within market internals. This suggests that the bull market is not yet over and again a bounce and re-test [or continuation higher] is a reasonable expectation.

Technicals [again]

The 3mth chart has the market sitting directly on support. Thus the opening price action on Monday will be important. If the level holds – and I do expect it to hold intra-day and towards the close, then I think we get the bounce for the week. If it fails badly, then I would stay away as the market could trade hard towards that $170 area.

Trade

Entered Trade

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