Drawdown Risk: SP500 Levels, Refreshed

POSITION: no position SPY

It’s getting a little gnarly out there now – as it should now that the SP500’s long-term TAIL line of support has been broken. So far, the April peak-to-today drawdown has been right around 10%. At my immediate-term TRADE line of support (1219) it will be -10.6%.

As a reminder, across all 3 of our core investment durations (TRADE/TREND/TAIL), the SP500 is now broken/bearish: 

  1. TRADE and TAIL resistance = 1256
  2. TREND resistance = 1319
  3. TRADE support = 1219 

When the TAILs in my model break, that’s really bad. I see zero irony in the SP500 and WTIC Oil having broken their TAILs this week in the face of a TREND line breakout in the US Dollar Index ($74.69 = TREND line support).

When the TAILs are broken, it’s critical to remember that’s an explicit signal of a heightening probability of lower-lows in the coming days and weeks (i.e. I’ll be giving you a lower-low of support than 1219 next week).

The entire global marketplace is highly correlated on an inverse basis to the US Dollar Index. If you get the US Dollar right, you’ll get a lot of other things right.

I actually just sold my long US Dollar position and covered some shorts. At 1219, I’d do more short covering. Then, on any rally back towards 1256, I’m a seller again.

Keep moving out there,

KM

Keith R. McCullough
Chief Executive Officer

Drawdown Risk: SP500 Levels, Refreshed - SPX