How Investors and Traders Should Play the S&P 500

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CME – S&P 500 INDEX (Oct) Daily Intermediate Trend (3 Months): Negative Friday's Close: 1224 (+20.92) Ways To Play This: ETF (SPY, SSO, UPRO, SDS) or Managed Futures UPDATE: Ten weeks and counting – we identified a range in this market between 1204.00, and 1114.00. Since that time, ninety percent of the price action has remained within those parameters, as the overall capitulation between the Bulls and the Bears remain in play. As our readers are aware I have remained bullish from the first week in August as the Index was testing the 1100.00 region- even in light of the seemingly overwhelming bearish fundamentals. For the past month we have told investors to stay the course (remain optimistic) unless a weekly settlement (Friday close since we are analyzing a weekly chart) 1114.00 is posted. In fact we recommended to our members on Sunday October 2nd to look to get long the S&P and equities in the 1090 region. Friday September 30 we closed at 1131, and on Tuesday October 4th we made an intraday low of 1074 and closed at 1123. We told our member to take some profits at 1160 and 1190 since the run up. Currently, the market has closed above two key pivotal resistance points at 1204.00 and 1220 respectively. We have only closed above 1220 3 times in the last ten weeks. Friday's settlement above 1220 region is the first step to dissipating naysayers. We think its prudent to take profits off up here if you entered the market 80 t0 100 points lower on the S&P 500. For long term investors, we believe at this juncture we will see the 1245 region for two reasons. We said back on Tuesday October 4th the VIX was starting to show significant signs of breaking down. First, this was telling us the market has discounted a large majority of the bad news, see chart below. As you can see from yesterdays chart we broke that key support level, giving us more conviction on the up side for the S&P 500. Secondly, when the market starts to push above a critical inflection point as 1220, you can get a parabolic move potentially breaking the ten week range, getting us to the upper key resistance of 1265. Game Plan for the Week Long Term Investors: At this juncture U.S. domestic earnings and economic data will trump EU concerns. This was not the case prior to Oct 4th. As a result of a collapse in the VIX, this has shifted the focus back to risk on and fundamentals. Long term investors stay the course and look for 1245, then start to consider reducing risk. I believe you will have a chance to get long again around the 50 Day Moving Average of 1175. Short Term Investors: It's thought to get long at this juncture, but some times the hardest trade is the right trade. I would not entertain the idea of getting short, we are not there yet. We are contrarians in our trading style. I had several people tell me this rally isn't real because of the light volume. My balance sheet doesn't care about light volume, it only cares if the value increases. You had a lot of people saying we would NOT get above 1210 this past week and by the end of the week have now flip flopped, saying sell into 1125. We have held steady in our long term opinion and have traded around it as well. At this juncture, we are only looking to reduce beta and go with some out performance pair trades. You have a lot of earnings this week which will allow you to find some great pairs. If you are looking for trade ideas sign up for a free trial.
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