Nothing has changed since the US Equity Market Outlook posted over the weekend. The $SPX is has now entered the ‘likely reversal zone’, closing around 1978 yesterday but could push up another 12-20 points before challenging major resistance. The Nasdaq 100 closed the day about 4% below the bottom of its well-defined sideways trading range from late 2015 (the 4500ish level). The bearish rising wedges on the 60-minute minute time frames of the major US indices continue to build with prices now approaching the range in those patterns where a breakdown typically occurs.
On face value, it appears that any upside in the broad markets is limited to about 4% right now & as mentioned in Sunday’s video, with so many eyes targeting those key overhead resistance levels/Fibonacci retracements/bounce targets/etc., the markets are more likely to either fall shy (as in reverse & start moving lower very soon) or punch up through those over-targeted levels in order to not give the majority what they are looking for.
As mentioned in the trading room yesterday afternoon, I did take the first lot of a very small short position in my plan to start scaling short from here up to around the 1990 level in the $SPX although at this time, I’m leaning towards keeping any short exposure relatively light, even if/when we get to 1990, unless something convinces me otherwise. The problem with going to a full net short positioning is that I’m seeing several key stocks & sectors with bullish technical postures along with numerous bearish setups. My concern is that the broad markets could trade sideways for a while (several weeks to possibly a couple of months) either grinding slightly higher or slightly lower. If so, there will still be plenty of money to be made going long the most attractive bullish setups and shorting bearish setups offering attractive R/R profiles. Yes, this market can turn on a dime any day now & kick off the next major leg down that so many are looking for but I’m just not fully convinced that the recent rally, including yesterday’s Bearbecue, was enough to alleviate bearish sentiment and reduce the short-interest to levels needed to mark the end of this rally.
My plan for now is to begin to strategically reduce my long exposure by closing out individual positions as targets are hit or pullbacks exceed levels where I would expect the buyers to step in. I will also strategically but judiciously add short exposure, preferably with individual stocks or sector ETFs vs. shorting the broad markets as I think the next few weeks+ will be a stock pickers market, not a buy (or short) and hold market. PCLN is one short that I took a starter position on in pre-market as it backtested both the uptrend line on the daily chart (off the Jan ’15 lows, log scaling) as well as backtesting a key uptrend from below on my weekly chart, following a breakdown in early January. I’ll share that chart/setup after the open today.