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POSITION: No position in SPY

No matter where you go, here we are again – testing higher-highs for both the intermediate-term cycle and the YTD.  With the prior closing high of 1324 established on Tuesday, February 8th, it looks like The Mu-barak wants to be the latest huckleberry for the bulls.

I’ve been talking about the probability if seeing either my 2.5 or 3.0 standard deviation lines of 1330 and 1340 (or both) tested to the upside in the immediate-term. That’s why I’m not short the SPY and have been leaning long with 2 of the 9 S&P Sector ETFs (XLV and XLU) all week.

That doesn’t mean I won’t start selling longs on the way up to my immediate-term TRADE lines of resistance (1331) and then start re-populating my short exposures however. The inverse relationship between the VIX and the SPY remains a very dominant one and we are approaching a big level of support for the VIX that held in both mid-April 2010 (before the 15% correction we called for in our May Showers call) and mid-January 2011.

My immediate-term TRADE line of downside support at 1315 has held like a champ all week. If they break that, there’s no support down to my intermediate-term TREND line of 1233. And I don’t think many people are positioned for that kind of drawdown in price.

Trade this market tight – the rest of the ride won’t be for the faint of heart,


Keith R. McCullough
Chief Executive Officer

Higher Highs: SP500 Levels, Refreshed - 1