Oversold, but Bearish: SP500 Levels, Refreshed

POSITIONS: Long Healthcare (XLV), Short Industrials (XLI)


Our call for Growth Slowing is finally morphing its way into consensus expectations. Not clear why it took so long (Global Growth Slowing has been plainly obvious in the Global Macro data since March), but most things in life aren’t crystal clear until we see them in the rear-view.


The other big thing going on out there is that the US Dollar is having its 5th consecutive up day. That drives The Correlation Risk which, in turn, drives a stiff Deflating of The Inflation (Gold, Oil, Copper, etc). When Growth Slows AND Commodities Deflate, “cheap” mining and energy stocks get cheaper, fast.


All of this is obviously good, in the end, for the 71% of America that matters to GDP – Consumption. So my long-term TAIL of 1281 in the SP500 should hold, provided that we keep Bernanke’s iQe4 upgrade of oil prices out of the way.


In terms of the lines, across risk management durations, that matter most: 

  1. Immediate-term TRADE resistance = 1388
  2. Intermediate-term TREND resistance = 1365
  3. Long-term TAIL support = 1281 

In other words, once we snapped my 1388 and 1365 TRADE and TREND lines, the market snapped. Don’t freak-out down here though. Let people who didn’t prepare for this do that. Unless we crash, there’s an immediate-term TRADE line of support at 1349 that should hold today and the mean reversion bounce back up toward 1364 could happen very quickly.


Trade this aggressively from a net exposure perspective. Keep your gross exposures low.



Keith R. McCullough
Chief Executive Officer


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