For the past 13 weeks the broad U.S. equity market has been making a long, slow, messy top. Very messy.
Every high is immediately followed by a smack-down and a sharp decline. But if the bulls can’t get much above 1900, the bears can’t knock it down much below 1850. And it has been like that for the past 58 trading days.
Enough, already! Let’s get it going, one way or the other. And maybe this is the week we will.
We have VIX options expiring Tuesday (May 20) and more jawboning from the Fed chair. Either or both could serve as the excuse for a dramatic move – in either direction.
The chart last week was ugly: a pop up to a new all-time high barely above 1900, followed immediately by a smack-down, and a close virtually unchanged from the week before.
The steadily decreasing volume in the S&P is a matter of some concern – who is withdrawing from the market and why? – and with it the almost complete lack of upside energy. This is looking more and more like the ‘distribution’ phase of the market, when the smart money passes the bundle to the next fool, and goes away for the summer. We still think there is the possibility of a high around 1920. But the upside is definitely limited.
HOW TO TRADE IT THIS WEEK
We use the S&P500 mini futures – the ES – to trade the broad index. This week we are watching the range from 1859 to 1879. Any move outside this range is likely to trigger a larger move.
If the current futures contract (ESM4) breaks above 1879 and starts to take out the stops around 1879.50 and up, we will be looking for a move up to 1885-1888.
If the ESM4 breaks down 1859 and takes out the stops around that level, we will be looking for a move to 1854.50 initially, and 1847-48 as the final target.
Chart: SPX Daily chart to May 16, 2014
Every pop up is smacked back down, The bulls can’t drive it up and the bears can’t push it down. Sooner or later, this has got to stop.
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We will also being using short-dated options on the futures contract as part of a new low-risk strategy we are developing. Contact admin@naturus.com if you are interested in learning more.
Related Reading
Government Statistics Are BS: Use At Your Own Peril by Polly Dampier, Naturus
