The SPY is now at the bottom of the R3 zone. A reversal is likely either here or at the top of the zone (gap), while a break above that level would likely send prices to new highs. The QQQ is currently backtesting both the blue uptrend line as well as a horizontal resistance level defined by three recent gaps. The recent bullish falling wedge breakout in GLD is still well intact with gold prices continuing higher since the breakout.
Overall I remain somewhat cautiously bearish on equities, primarily the regional banking sector and other financial related stocks although I have a fairly diversified portfolio of individual shorts scattered amongst various sectors. I also remain bullish on gold & the mining sector as well as a few select commodities, including WEAT, CORN & select coal stocks in additional to a few miscellaneous long positions. While new highs in the US broad markets is certainly a possibility in the coming days/weeks, I continue to believe that the rally since the second & final near-term downside target (T2) on the SPY 60 minute chart was recent hit is simply the first counter-trend bounce in the early stages of a more substantial correction in stocks. As such, I have continued to add short exposure up to this level but from this point forward, will only add short exposure below these current resistance levels on the SPY & QQQ or on the most compelling individual short setups. As is most often the case, my stops are based on the individual technicals of each position and not what the broad market does although the bearish scenario will begin to rapidly deteriorate should the markets move much above these current resistance levels.
For those that prefer trading the broad markets (SPY, DIA, QQQ, MDY, IWM) or any of the related inverse or leveraged ETFs, options or futures contracts, I’d have to say that a short around current levels with a stop over the recent highs, particularly for the $SPX & $NDX (SPY, SDS, QQQ, QID, ES, NQ, etc…), offers a unusually attractive risk/return ratio with minimal downside if stopped out compared to the potential downside, should the $SPX & $NDX join the $RUT (small cap), $MID (mid-caps), and $DJIA (DJ Industrials/blue chip, large caps), all of which have recently broken below their bull market uptrend lines generated off the 2009 lows. I would also have to add that any shorts on the broad markets at this time are still counter-trend trades until/unless we see both the $SPX, $NDX, & $RUT join the $DJIA & $MID in breaking down below their respective bull market trendlines and as such, should be considered aggressive trades, unless used as a hedge against existing long positions.
The bottom line on both equities and gold is that the next major leg, up or down, should be decided soon: Some of the major US stock indices like the $SPX & $NDX are just a stone’s throw away from making new all time highs (bullish) while just below sit those all-important bull market uptrend support lines. Gold, although up a respective 10% YTD and the gold mining sector (GDX) up about 33% YTD, still has some work to do in order to help add to the case that a new cyclical bull market is underway, namely a break above the highs made back in mid-March. Both the mining stocks as well as US equities have been much more conducive to active trading (swing trading) so far this year vs. buy & hold strategy and my expectation for the remainder of the year would be much of the same (trader’s market) although I am treating my most recent move back into the mining stocks as longer-term positioning for the next major leg up, unless stopped out or the charts convince me otherwise.
Still negative for the year, the Russell 2000 ($RUT) is approaching downtrend resistance while both the key 50 & 200 day moving averages (exponential) are virtually flat. Should the small caps make a solid break above this downtend line in the coming days, we would also be looking at a bullish crossover of the 20/50 ema pair, which has been on a sell signal since
Just to clarify or expand on the previous 60 minute QQQ chart & comments, we did get a 60 minute close below the recent lows in the Q’s but by the slightest margin. Much more importantly, the three broad US indices that I focus my analysis on; the $SPX, $NDX, & $RUT are all still sitting essentially on or above key support (my long-standing first downside targets on the daily charts). Of course support is support until broken and although I still favor prices ultimately breaking below these support levels, at this time I continue to favor a bounce off the initial tag of these levels. As I’ve also repeatedly stated over the last several trading sessions, my degree of confidence on the near-term directions of the markets (and hence, any possible bounce) is not very strong and so my preference remains to keep things light by hedging up close to a market neutral portfolio (taking some long exposure to offset a large number of swing short trades that have yet to hit my preferred targets).
The daily charts of the $NDX, $SPX & $RUT below show the $NDX basically still trading at my first target level with both the $SPX & $RUT still slightly above their respective first downside targets, which are likely to be tagged before any meaningful bounce. If that happens, the $NDX would likely go slightly lower & thereby overshooting this support level by a relatively small margin. Only a solid break below these target/support levels on all three indices would convince me to remove my long hedges as that would likely open the door to a move down to the next target levels. As always, the live links to these charts are accessible from both the sidebar on the Homepage as well as the Live Chart Links page.
Here are a few bearish/short ETF’s for those looking for either a pure-play short on the U.S. equity markets as well as for those who might be looking to hedge a portfolio of longs, particularly in an IRA where shorting of individual stocks is prohibited. I am not a fan of the 2x & especially the 3x leveraged ETFs (SPXS, SQQQ, TZA, etc..) due the decay suffered when holding these instruments for more than a day or so. The first three ETFs below (SH, PSQ & RWM) are the 1x inverse (short) tracking ETFs for the S&P 500, Nasdaq 100, & Russell 2000 Indexes. Unlike those passively managed index tracking ETFs, HDGE is an actively managed bearish ETF which shorts the stocks of companies that they deem bearish from a fundamental perspective (click here for more information on HDGE).