The end is near

As crazy as this market seems it’s actually acting technically perfect IF you are trading it range-bound.   We came into yesterday telling our readers in the previous night newsletter that our game plan was to short $SPY 119 resistance.  We gapped a bit over and then ran straight down for many good shorting opportunities.  We came into today with 114 $SPY support — the last chart we included in last night’s newsletter.

114 was trend-line support and it held like a champ as we are now 3.5 points higher on the intraday bounce.

Now the plot thickens — with two clear trend-lines above and below the current print.   One more time through the 20SMA on the daily could do the trick and nullify this bearish pattern.    On the other hand one more trip to 114 and 112 is next stop.

Either way we believe we’ll be leaving this range soon which will likely coincide with the end of summer trading.  Gun to head we like the long break more than the short break, but at same time we’re not willing to ancitipate an edgeless pattern with hard-earned money.  Once the range breaks we’ll go into the closet and grab back the swing-trader’s hat but for now all cash by EOD is our modus operandi.

Resistance Shorts are all the Fad

The theme of the day was the reversal of the 20SMA on daily .    Let’s take a look:

Crude ($CL_F) reversed on the 20SMA

$ES_F and $SPY reversed on the 20SMA  ($SPY 119 short was our game plan spot)

$IYR reversed on the 20SMA  (another HCPG pick resistance short from our newsletter last night)

And the freebie we put out yesterday on the stream  $LNKD 73.2 short which set up great at 74 today for a nice smooth ride to 70.

Range bound strategies rule right now — we’ll see if that changes post Jackson hole.

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Market Road Map

A good start for the bulls today as the rally is still holding (3rd time indeed was the charm) but we have tons of resistance coming right up — ideally we base near the top of the range and then break-out.      Red line is resistance and the hard zone is  1146-1153 on the $ES_F.

 Note how this re-test is much smoother than the first — less wide as bulls trying to hold the fort.    If we can close over the red-line then we could get some continuation to the up-side.   Expect backing and filling around these levels.    And for the bears — if we go through dotted red trend-line and most likely we’ll go back to test 1077 $ES_F

Bulls doing good job keeping bonds and gold down today but a pop in the trannies ($IYT), which are lagging today, would also give the bulls some more confidence.    The animal spirits are there — the missing piece is bank stabilization.  If financials can get their act together we could be in for a decent counter-trend rally up.

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Random Thoughts

We’re looking for a few possible “tells” to give us indication of when to enter for a tradable rally.  Here are some thoughts and possible action scenarios:

• Gold ($GC_F) keeps ripping, going  through $2000 while equities hold stable.   Gold then starts to reverse, market rallies.    We want the gold/equities correlation to break-down.  Today was a good start as market closed flat while gold again rallied hard.

•  Is Gold $2000 like Silver $50?   We were all over the silver short but don’t have strong feelings about a potential gold short.  Not yet anyway.

• We sell off and take out the $SPY low of 110.27 but make a higher low over the overnight $ES_F low of 1077.

• There was whiffs of panic into the close as $GS got machine-gunned but we liked how tech held green and stable.   That’s a good start.  Small step, but in right direction.

• We would prefer an intraday reversal 10x over these gap ups that are so often faded in bear trends.

• We have a number of breakdown shorts on our list — we want them to all be taken out and THEN reverse.   If they don’t trigger we think the pain will only be postponed.

• This action reminds us not of 2008 but of 2002 where we grinded down every day in a market that didn’t scare out the bulls, but wore them out.

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