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POSITION: no position

The SP500 continues to fail at my long-term TAIL level of resistance. On these low-volume squeezes (yesterday’s US Equity volume was -25% below the 1-month average), this market is starting to develop some very bearish skew.

Bull markets are confirmed by bullish volume and the associated breakdowns in volatility. On a core 3-factor modeling basis, that’s how our model defines them anyway – and I’m not about to deviate from that risk management process anytime soon.

The corollary to a bearish TAIL (lower-long-term highs) in US stocks is a bullish long-term TAIL of volatility (VIX has TAIL line support in the 22-23 range). Volatility kills returns.

As of 11AM EST, the most important lines across all 3 durations in our model are as follows: 

  1. TAIL resistance = 1268
  2. TRADE resistance = 1258
  3. TREND support = 1216 

In other words, if the SP500 can’t start to confirm (close) this 1 zone, 1216 is going to be right back in play.

On this morning’s opening strength, I cut the allocation to US Equities in the Hedgeye Asset Allocation Model back to 0% (from 6% on the open and 12% last Tuesday when we tested my 1216). In the Hedgeye Portfolio, I have 8 LONGS and 8 SHORTS (vs last Tuesday 9 LONGS and 5 SHORTS).

Manage risk around the most probable range.

KM

Keith R. McCullough
Chief Executive Officer

Bearish TAIL: SP500 Levels, Refreshed - SPX