Technical Tuesday – S&P 1,200 or Bust Yet Again

Will patterns repeat? Phil is placing a bet on it. For another perspective, that comes to the same conclusion, read also Allan’s Conflict in the Model. ~ Ilene 

Technical Tuesday – S&P 1,200 or Bust Yet Again
By Phil of Phil’s Stock World

Oh no, not again. 

It’s already time to hedge to the downside (actually, it was yesterday and we did) as we once again test our Must Hold levels at Dow 11,590, S&P 1,235 and Nasdaq 2,603 but it’s that 1,200 line on the S&P that has given us our first sign of trouble – again and again and again this summer.

You know what they say:  “Fool me once betting the S&P keeps rallying over 1,200, shame on you – fool me 5 times since August first and just call me a perpetual bag-holder.”  Our choice of hedge in our Live from Las Vegas Member Chat yesterday was my 2:12 comment:

SDS Oct $22/23 bull call spread is .87 in the money at net .42. That makes 150% if the S&P doesn’t hold up here. Of course stop out if S&P makes 1,200 but otherwise good weekend protection with stop at .22 so $420, risks $200 to make $580.

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We spent much of the weekend at our first annual (and it’s going to be at least annual as it was too much fun not to do again) PSW Investing Conference talking about balance and hedging and trading our ranges – there’s a really nice dynamic of having the group discussions…

Anyway, the short story is that, after seeing the S&P fail at the 1,200 level 5 times in 8 weeks, we take the opportunity of another run-up to take a short position that should pay 138% if the S&P does what it did the last 5 times and heads to the bottom of its range again, where we will be happy to go long while others are panicking – again for the 6th time!

As you can see from Doug Short’s S&P chart above, we’re in a very critical resistance zone for the S&P 500 as it tries to break out of the downtrending channel we’ve been tracking since the collapse began in late July, when we fell from 1,350 on July 22nd to 1,100 on August 8th (25.9%) while the Dollar rose from 73.50 to 79.80 (8.8%). So, in order to get a clearer picture of the technicals – we need to give the S&P at least an 8.8% upward adjustment to compensate for the Dollar weighting. That puts the S&P at exactly 1,300 price adjusted to the July 22nd high, down just 3.7% for the Summer.

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I know this sounds strange as “expert” analysts completely ignore the Dollar’s effect on the PRICE (not VALUE) of equities but that’s mostly because the concept can’t be put into a sound-byte and packaged for your financial entertainment Dollar and never forget that’s all it is – the networks, the newsletters (even ours), the magazines, the funds – they are competing for your attention and your money, whether through commercials or subscription fees and, just like McDonald’s doesn’t make the most delicious hamburger – quality has nothing to do with success in mass financial entertainment.

We joke about it a lot and, in fact, having CNBC on at Cafe Moda (and thanks to LV Moda once again for arranging the space as well as Savi for organising the event) was like nails on a chalkboard and we ended up muting the now Cramer-heavy morning show.  I have it on, but I mostly tune it out with my ears trained to perk up in case something ACTUALLY happens but, watching CNBC with a group of very sharp actual investors makes you realise how useless it is – at least McDonald’s has good french fries!

As the “Occupy Wall Street” movement spreads around the nation – it is no longer possible for Wall Street’s PR arm to ignore it but they still don’t know how to report on it as they can feel the winds changing as their polls begin to show them that, in fact, 99% of the people are beginning to realise they ARE in the bottom 99% and that being in the bottom 99% in America kind of sucks.  

We’re in Las Vegas and we have a $100 dinner here and a $100 dinner there and see a $200 show and we pay $6 for a bottle of water and $20 for a 10 minute taxi ride (and ironically, there are ads inside the cab for hookers who charge less per hour) but then you literally drive 4 blocks off the strip and you are in a horribly depressed town with some of the highest unemployment and THE most depressed real estate market in the country (Miami is coming back).  THAT’S THE 99% – saving money on their electric bills by reading off the neon spillover from the buildings the top 1% occupy.  

It’s a microcasm of what America has become – sure some of the top 10% and even some of the top 20% are allowed to come visit and, of course, work for us here but they sure can’t live here, can they?  The reason the masses have been “content” to be on the outside looking in for all these years is because they truly believed (and we’be been brain-washing them since Horatio Alger stories in the 1800s) that if they worked hard and didn’t cause any trouble, that either they or their children would have a chance to be “one of THEM”. 

What Occupy Wall Street is doing is only illustrating the growing realisation of the bottom 99% that all that is BS, and has been for quite some time. The US has less than 1% relative mobility from class to class – that’s 1 out of 100 people improving their lot in life within our system.  Not that other countries are much better in the “free market economies” but being the worst of the group is SHAMEFUL and that’s what this movement is about – the other 99 people are finally “Mad as Hell, and they are not going to take it anymore.” 

 

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