POSITION: Short SP500 (SPY)
For the 2nd day in a row, the US stock market has rallied (intraday) from what we call critical immediate term TRADE lines of support. Today, that line = 1209. This is important and something that should wear on the bears until it doesn’t.
The corollary to barely holding on to support is that eventually markets break support. With time and space, the probabilities of significant mean reversion corrections increase. Then, what was support becomes resistance. If the SP500 were to break down through and close below immediate term TRADE support of 1209, there is no support until 1187 (another -2.5% correction from yesterday’s closing price of 1218).
From a longer term perspective, it’s important to remember that, like the Nikkei 225 has in Japan for the last decade, the SP500 is simply making a series of long-term lower highs versus its leverage cycle-peak of 1565 in October of 2007.
From a more immediate term correlation risk perspective, the US Dollar is now trading bullish on our immediate term TRADE duration as well. This is new and, combined with a very hawkish macro calendar (global inflation data and G20 rhetoric), will have me doing a lot of waiting and watching. Support, after all, doesn’t hold in perpetuity.
Keith R. McCullough
Chief Executive Officer