The US Equities market sold off in a weak session yesterday, completely erasing the strength from earlier this week. Though short-term patterns suggest lower prices, it is important to realise that this move brings the market into potential support from 1,069 (S&P Cash) to 1,060 which marks the bottom of the extended trading range. Human nature is to get very bearish at the bottom of ranges and bullish at the top, but more often than not, the range holds and prices at least stage a small reversal. It pays for us to respect support.
Short-term traders today should approach the session with a bearish bias, but realising that moves will not be clean in this complex support area. In the somewhat unlikely event that the market completely penetrates support in today’s session, there is the possibility of an outsized downward move this afternoon. Though this is not a high probability play, the magnitude of the potential move justifies the expenditure of some mental energy in preparing for this scenario. Remember that today is options expiration (5 week expiration), which may introduce some additional crosscurrents into individual names with active options.
- R2K/SP500 Spread: We are short this spread as a long-term holding.
- Gold: We will short Gold on the first strong downward move.
- EUR/GBP: We hold a Tier 3 Conviction Short.
- Sugar: We hold a Conviction Long in this market.
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