CME – S&P 500 INDEX (Sept) – Daily
Intermediate Trend (3 Months): Negative
Friday’s Close: 1129.40 (+6.30)
UPDATE: Seven weeks ago, we drew two proprietary horizontal parallel blue lines at 1204.00 and 1114.00 (see chart). At that time we stated; the market should trade between those points for several weeks. Furthermore, we opined; that even though a congestion pattern in this region was, by text book definition, a bearish pattern that should ultimately break lower – we were optimistic the Index would hold support and eventually trade higher. Seven weeks later, the market remains within the range, as the overall capitulation between the Bulls and the Bears remains in play. Last Wednesday the 14th we sent an email telling our members to reduce risk at 1190 on the S&P 500.
In light of this, two weeks ago, the Index gained 53 points, posted a weekly settlement (Friday Close) above 1204.00, only to fall once again last week, back to the range. Regardless, we remain bullish on the intermediate to longer term chart, in light of the seemingly overwhelming bearish fundamentals. Only a weekly settlement below 1114.00 would alter our opinion.
Short Term Trend
Even though we remain bullish on the longer term chart, the short term trend (weekly) is a different story. We have been recommending to our members to reduce exposure and wait for better entry points.
Last Wednesday the 14th we sent an email telling our members to reduce risk at 1190 on the S&P. Again on Friday the 16th we sent an email at 2:42 p.m. to reduce risk at 1216. Back on Sept 1st we published an article on Forbes “Reduce some risk, nothing has changed. We are Stalling.” We stated, don’t be greedy if you had profits and sell in the 1219 region of the S&P 500. We told readers to sell at what we said was key resistance of 1225 to 1230 and look for the next rally to sell some of your long positions. Nothing has changed with respect to the headline risks to the global economy”.
Friday we closed at 1136 on the S&P 500 and was the worst wek since 2008. The Dow was down -6.4% and the S&P 500 down –6.6%. We have relentlessly been suggesting to our members, wheather they are investors or traders to put on our pair trades to reduce market exposure and gain outperformance.
Our members this week benefited from our advice.
- On a realised basis we were up +5.50% this week.
- We gained +2.20% on Wed Long XLK Short XLF
- We gained +2.50% on Thursday Long XLV Short EEM
- We gain +1.04% on Tuesday Long SPY
- We told our member two weeks ago we hit a top in gold
- We also sold our members last week Sept 14 to reduce risk at 1190 on the S&P 500
- Again we told our members on the 16th to reduce risk on the S&P 500 at 1216
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What is concerning is after the 1125 support level, next stop is the 1101 support level. If we breach this level, we will hit a large air pocket going that will descend to 1010. This is not inconceivable.
Risks that get us to 1010:
- Greece completely defaults
- German Parliament has no resolution
- Credit Crunch of magnitude proportions as a result of the first two scenarios
In the Short Term: We suggest reducing equity exposure at 1176, 1190 and 1204 to raise cash and re-enter at better levels. For those investors that don’t want to reduce their long term holdings we suggest protecting their capital at all cost. This can be done with an overlay of shorting SPY or buying some Put protection. We think there could get a violent move to the upside back to 1204 with any positive EU backstop that should be sold. But if you are looking at the YTD chart of the S&P 500 we are not over sold. There is a marginal chance we hold of the bottom of the region we have identified over the last 7 weeks.
EU BackstopSenaro: If the EU reaches a backstop for the banks we will push higher if: A.) deal done quickly enough B.) big enough; this could get us a couple day rally to the 1190 and 1204 region. We are still in a 100 point range in the S&P. If this happens, don’t be greedy and reduce risk up there and re-enter some hedges.
NYMEX – GOLD (December) – Daily
Near Term Trend: Negative
Friday’s Close: $1,639.80 (- $101.90)
UPDATE: Four weeks ago we called for a double top, and within two days of that prediction, the double top was confirmed. As it relates to the double top, Gold has fallen $280/ ounce within the last three weeks, and most of the severe correction came last week. At this juncture bargain hunters could enter the long side at the early part of next week. We have identified the $1,592.00 region as an area where the market should hold. The slope of the 21- Day M.A. Line has turned negative (first time since July 11), for the last seven days.
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