The Quick And Dirty

To call the current bounce tepid would be an overstatement. There’s simply no meat in this tape and instead of buying interest it feels more like a mere absence of selling interest. The same lack of virility near the top is what led to this correction in the first place and it’s quite possible we are not done here by a long shot. As many of you have been commenting about – it just doesn’t ‘feel right’. However, we cannot argue with price and it’s possible big players are feigning weakness. Word has it that there’s a spike in open interest in the spiders and the cubes. So let’s treat cautiously and focus on what major hurdles lay ahead on the equities side.

First a snapshot of the SPX and spoos courtesy of the Zero indicator. Compare the huge signal near the bottom with the flatline that’s driving us higher. On the Zero Lite (right pane) we are making due with a 0.5 signal range and that’s nothing to write home about. I would very much enjoy prices to climb a big higher before thinking about shorting again but I am not certain we have much to go.

With that said – let’s look at today’s most important chart – the SPX cash. Actually things are suddenly coming into focus here. Right on top of us looms the 100-day SMA at 1772 and a few ticks. At the same time we’ve got a weekly NLSL at 1772.28 – which we lost earlier this week. So the conclusion here is rather obvious – on the S&P cash (not the futures) our new inflection point should be only a few ticks higher at 1772.3ish. Being short right here with a stop a few ticks above that has a low risk/benefit ratio (which means it’s good). Once we push above that – about 1769.75 on the futures right now – the bulls have a very good chance to finally trigger a squeeze. Until that happens the bears still own this tape.

Bottom Line: There are low odds that this could be a last kiss goodbye before continuation lower. Be short now with a stop a few ticks above today’s highs – mine is sitting at 1770.5 on the futures. If stopped out I will flip for a handful of long positions with a stop a healthy distance below the SMA (at least three ticks). Bear in mind that the odds are mixed here but due to the small risk I am willing to attribute 0.5R to a lottery ticket and then build it up as it goes my way.

That’s all for today – I am cautious about not getting over exposed in this tape. Have fun but keep it frosty.

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Cheers,