SP500 Levels, Refreshed: Parts Unknown

Keith and I are taking the Hedgeye show on the road this week.  We started the day in beautiful Winnipeg, Manitoba, are now in Minneapolis, and head to Boston tomorrow.  And no doubt, we’ll have a few stops in between.  For those of you that happen to find yourselves in beautiful Minneapolis, we’ll be hosting a Hedgeye Happy Hour at Brit’s Pub at 1110 Nicollet Mall.


Not unlike some of our travels, roaming between major cities over the course of the last few days, the SP500 now finds itself levitating to Parts Unknown. Currently at 1,411, the SP500 is bumping up to our TRADE resistance line at 1,413.  The updated levels – 1,413 sell TRADE, 1,379 buy TRADE, and 1,291 buy TREND – are outlined in the chart below.


The question from here is not what to do about what’s happened in the year-to-date (yes, it has been a good year for equities), but really to consider what will happen next.  A couple questions we would recommend considering before chasing equities into Parts Unknown:


1.   The VIX is now at levels not seen since last summer, so what kind of complacency is baked into the stock market?

2.   Growth is not accelerating.  In fact, today we received a sign from the corporate sector that corporate decision makers may be more cautious on growth, with Apple deciding to pay a dividend.  As always with management teams, watch what they do.  Are equities priced for sequentially decelerating economic growth?


3.   We are on the road this week briefing some of our key subscribers on Japan and accelerating sovereign risks there.  Not to say a debt crisis is imminent, but it is a probability that is moving from the tail to the normal distribution.  Are equities pricing in the potential of another debt crisis?


Ultimately as Michael Bloomberg, and I’m sure many others before him, said, “People are worried about the unknown.”


The question remains: are investors worried enough?




Daryl G. Jones


Director of Research


SP500 Levels, Refreshed: Parts Unknown - SPX



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