Traders Corner   9 comments

S&P 500 futures are down slightly this morning, so I have to call yesterday’s high at 1768 a strong resistance level. However, that doesn’t mean we won’t see it broken before the end of today.

A lot of people are comparing this market to the late 90’s “dot.com bubble”. The comparison is apt, mostly due to valuations that many stocks have no possibility of ever rising to meet, at least not in the next 5 years. It is safe to call this market a bubble, but does that mean you should get out of it? It all depends on your level of risk tolerance. Bubbles can go on for a long time, or they can pop tomorrow. If you have no tolerance for risk, I would suggest getting out now. For everyone else, I would suggest keeping an eye for the exit, which will be any sign that the Federal Reserve will be tapering QE. There is some talk about it possibly coming in December, but I would suggest even the Fed doesn’t know yet. Watch the economic reports, looking at them with the attitude of “bad news is good news and vice versa”, because that is how the big money will view them.

The S&P 500 levels to watch today:

UPSIDE: 1768 (2 data points), 1772 (October 29th’s high), 1775 (October’s high and the all-time high), and 1802 (top of the Bollinger Bands).
LAST CLOSE: 1767.
DOWNSIDE: 1764-1765 (2 data points), 1761 (November 4th’s low), 1759 (2 data points), 1757 (2 data points), 1755 (October 31st’s low), 1752-1753 (4 data points), 1732 (20 day moving average), 1729 (September’s high), 1709 (August’s high), 1700 (50 day moving average), 1698 (July’s high), 1687 (May’s high), and 1663 (bottom of the Bollinger Bands).

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9 responses to “Traders Corner

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  1. Once again, I am looking to sell UPRO at $85.00 today. If it comes close to that, I may seel it for less this afternoon. Otherwise, I have no problem carrying it into tomorrow.

  2. Ed, have to disagree with you here. When the market turns, it will be long before you think you see it in the economic reports. The retail investor mistakenly believes that they will see the turn and get out before the big drop comes. Probably not going to happen. If you think you will be able to pick up on the hints that the taper will begin it will be too late. As you know, I play the game with the charts. Why? Because they tell me what the big boys are doing, not what they are saying. I’m not predicting a correction, but there are troubling signs right now. Small caps are showing more weakness and usually lead the S&P. I’m seeing that now. Up days in S&P are weak, down days are showing momentum. Could we be at the start of another 3 to 5% pull back and then move higher again? That could very well be the case. We’ll have to see. My advice to all is decide if you are an investor or a trader. If you are an investor you have to believe in the long run and have to ignore the ups and downs. Trying to be a trader/investor will undoubtly lead to failure.

    • Trader – thanks for the note. Your comments about small to mid cap stocks being canaries in the coal mine strikes me as very true. Do you have a certain bear signal you are looking for? I watch the iwm, and to me it looks ok but I am a novice with charts.

      • Marshall, I use IWM as well. I would agree with you the charts do not look that bad, yet. If you compare daily and weekly charts with the SPY you can see the small caps are showing more weakness. I look at this as a red flag. If the decline continues and the S&P starts to pick up momentum, my guess is we will see at least a 3 to 5% drop. If we start to bounce again and the technicals start to show momentum to the upside, then we probably move to new highs. If bounces are weak then my guess is we move lower and may finally see a 10% or greater move down. Of course, my crystal ball is a bit foggy. Throwing it against the wall probably didn’t help.

    • Trader,
      As for the movements you describe, yes, we could get a correction. That’s short to medium term static. Every correction we have had under this QE has always bounced back to new highs. I see a correction here as an excuse to buy more.

      Personally, I see this current pullback as investors being cautious leading up to this week’s GDP and Employment reports. They are looking for Fed “tells”.

  3. Interesting. So you look at charts relative to each other. Does the reverse hold as well? I have to imagine the iwm was toasting the spy for most of 2013. Would that situation make you more exuberant?

    • IWM is up 27% for the year, SPY 21. I wouldn’t say I get more exuberant. As a trader I look for short term opportunites and try to improve my odds by being on the right side of the trend. Having said that, the trend may only be for a single day. I try to watch the overall market for clues where we may be headed, but it really doesn’t matter when you are day or swing trading. I trade oil a little differently. I usually use covered calls because it is usually not very volatile. I like this trade since it is low risk and I get a return better than dividend plays.

  4. Thinking about traders comments, the direction of price of crude oil and Goldman Sachs putting a sell recommendation on RIG, (GS said that RIG has the oldest fleet – which implies they may need greater reinvestment and that RIG has a couple large contracts coming up and will likely get lower rates going forward) I have decided to sell all my RIG. Not my best purchase, I netted a 2.5% loss. That moves me to 26% cash. Good luck to others still holding it.

  5. Trader, Think you for passing along your info.

    This weekend I did a little homework. Found someone saying the different indexes are at different areas. Meaning 1 isn’t going to go up without the other. Another was see if the Dow found support @ 15519 and bounces. Now seeing what happened today only tells me we are still in wave 4 of the Elliot wave. Until we push through 1770 ES I don’t see bullish. We hit record high which completes wave 3, wave (a) low 1748 wave (b) 1763 wave (c) we would expect to be less than wave (a). Now this is off ES charts.
    Oil I didn’t expect to see a drop, I’m not sure many did as well. The drop to the down side does open the door for that 91 area.

    For those who like news Europe is in Deflation? I haven’t read it yet not surprised US has been, only reason for QE
    Nice article in LA paper about Fed.
    http://www.latimes.com/business/la-fi-fed-assets-20131029,0,5018539.story?page=2#axzz2jiXzW14l

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