Up, Up and Away? Maybe Not

Here’s hoping that everyone had a delightful Thanksgiving break. Since I was home for a long weekend, I was actually able to trade futures for a bit on Friday, and managed to make money using some of the techniques taught to Todd (including $TICK) even from the long side. Most of the time, I have to be somewhat longer term in my trading, and with that in mind, the question is whether after 8 consecutive down days for the SPX, is a significant rally at hand?

First, the good news, at least for those who are long; assuming that we don’t get a large move lower into the close, today’s vertical bar, combined with Friday’s, should offer one of the three chart patterns that indicate a potential reversal within a trend. Todd goes into all of these in considerable detail in his course.

The SPX closed on Friday at 1158.67, and is currently trading as I type at 1190.13, a gain of 2.7%. It’s psychologically pretty tough to reach for buys after a rapid rise of this sort, but of course if another 5% is in store, it would make sense to put the profits that could have been made with hindsight, but weren’t, where they belong – out of mind – and look for the coming opportunities.

The SPX did bottom out more or less exactly at the 61.8% Fibo retracement. Given that it declined that far from the 1292.66 high on Oct. 27, the expected retracement wouldn’t necessarily challenge the previous high, but it would ordinarily cover at least half of the intervening distance, or 1192.16. That is, the market has already covered the minimum distance; from here, the risk of a stall and a move lower certainly exists.

I like to have a sense of why things are moving as they are, which probably comes from my professional training as a historian (long ago and far away). Europe has been one key, and despite the rumors about an IMF loan to Italy, I see no reason to assume that it will end well, or with the Euro as presently constituted intact. Angela Merkel will make an important speech to the Bundestag on Friday, and the next EU summit is on Dec. 8 – 9. The market will be looking for real solutions, and may be disappointed. That should get the Euro lower, again, which will tend to put downward pressure on stocks.

The other overriding issue has been the U.S. deficit. I don’t know how that will play out, but within the time frame that I care about – a couple of months, at most – the odds that a viable solution will be on the table seem pretty remote.  To a degree, what was supposedly a strong Thanksgiving shopping session has outweighed those concerns, but it’s pretty early days to declare a victory for the U.S. consumer.

In short, the charts suggested that a bounce was overdue, and we’re getting one. A move back above 1210 will be interesting, but I’ll feel much more comfortable selling into strength than I will buying momentum. Again, this is only for my longer term trades; for the daily futures trading that I don’t get to do much, I’m completely indifferent as to long and short, as long as the resulting color is green.

About the Author Brian Keith


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