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POSITION: Long Utilities (XLU), Short Consumer Staples (XLP)

Making the multi-factor, multi-duration, risk management sausage isn’t easy. If it was, Nomura would be sending you a note today about sausage.

I’ve been writing this since the SP500 got back above its immediate-term TRADE line of support (1169), and it’s the point to be made once again. The SP500 is bullish TRADE and bearish TREND/TAIL with the following lines that matter: 

  1. TRADE = 1169
  2. TREND = 1229
  3. TAIL = 1266 

Broken TREND/TAILS are not good. This, anyone managing risk over the course of the last 5 months knows. What they may not know is that when an immediate-term TRADE breakout expedites itself on a low-volume squeeze, you create a big air-pocket.

Air-pockets, within bearish TREND/TAILS, are not good either. As prices move higher within then, the probabilities of a crash (from those higher prices) increases.

If this market fails at 1229 and dives below the TRADE line again – and it could all happen very abruptly – I’d call a 1-3 day short-term peak-to-decline move towards 1086 probable.

People like to talk about “risk management” on a revisionist basis. The real-time risk management occurs when someone flags the probability of something crashing going up as the market is going up.

That’s not me making up mathematical stories. That’s just how I make the sausage.

KM

Keith R. McCullough
Chief Executive Officer

Sausage: SP500 Levels, Refreshed - SPX