The sharp edge of a razor is difficult to pass over; thus the wise say the path to Salvation is hard."
It seems like the timing of my morning, intraday post was not bad at all. I almost picked the top of the day to short. Sometimes, we get lucky.
I took some profit, hedged some, and the rest is still open. As I mentioned in my intraday post, I am only betting in small measures, and only against S&P. My bet is not against foreign indexes (in fact, I like a few), nor against Nas100, which I have trimmed recently, nor against individual stocks.
This will not be a blind case of a short-it-and-forget-it position of large proportions. I will do whatever it takes to be able to carry a position, and to trim the cost of that position. And, I will not be hesitant to concede defeat and run if I feel the heat.
None of that should distract me from my goal of detached and objective analysis of the index to the best of my abilities.
So, let’s get to it
It was the second day in a row that 875-878 area contained the buyers. If what I suspect is true, and market is running low on squeezable shorts, then we will see a pullback. It is too soon to say anything with any certainty. We have to wait and see how the index behaves around the 875 area.
S&P is at a very critical juncture:
- A lengthy sideways move accompanied with dipping oscillators may be interpreted as consolidation and, thus, a positive development for the bulls.
- A take off from here on bad volume and/or bad momentum will probably not be very bull friendly for long.
- A take off from here, if accompanied by healthy kick-start volume, and new momentum peaks, may be a disaster for the bears. In my books, such a development can reset the bull case to a new ground zero. They can start fresh from here. It will, after all, be seen by all technicians and their grannies as a successful H&S breakout. Under this scenario, I will seriously consider taking my bearish bets off.
- A break down from here will present the market with a much needed breather. How the bulls behave on the way down will give us clues about the depth of the drop.
There is some weakness in the background – at least for now. So if bulls are, for the moment, satiated, and squeezable shorts are all but chased out back to the jungle, then who is gonna run this? There is a limit to agency shenanigans and client facilitation. Such games need suckers, bull or bear. And such agencies are the first to know if there are enough suckers to keep the game going or not.
Regardless, I will have the above 4 scenarios in mind and see which one presents the script for the show.
My road map is still holding well. This is one the best channels of my speculating career. In a market super charged with emotions, it filtered out all sorts of noise from all types of unsavory characters
There are a couple of things on the chart above that I find interesting.
Notice how price has tried to stick to the underside of the broken trend line (blue line). Also notice that we have short term series of higher highs and higher lows on MACD. These are just things to keep in mind as we monitor index behaviour in hours and days ahead.
This is the 60-minute chart of June contract
The move from April 21 can also be viewed as an expanding triangle. If so, the pattern looks complete at this time, a new high may alter the picture. I will worry about it when it happens.
Let’s calculate some theoretical targets
If the count is correct, then
C = 0.618 * a = 850
c = a = 820
c = 1.618 * a = 785
If the expanding triangle was the case, then theory gives us 805.
Of course, all of this may go down the drain if market breaks above the neckline or goes sideways for some time.
There was no magic to my decision to short the market this morning, just chart reading and calculated risk
I had the strong possibility of a completed pattern as illustrated above. With that in mind from a larger frame, I played the smaller frame
Short term trend is up. Mid-term trend is up. Long term trend is down.
Resistance 875-878 (neckline), and then 912 (pivot). Support is the frequently contested 850 area.
Food For Thought:
Let's take a look at the 10-yr yield.
Is this really what the matinee idols at the Fed want?
Are they incapable of controlling the rising rates? That's certainly what gold enthusiasts and hyper infaltionist would want us to believe.
Or maybe it is so that they think they have the situation under control and are willing to tolerate a slight rise in rates within the context of a rising market, and perceptions of green shoots shooting out of every crack imaginable.
I just think it is an interesting situation to watch.
Have a nice evening!