POSITIONS: Long Healthcare (XLV), US Dollar (UUP), Flattner (FLAT), Longer Term Treasury Bond (TLT), Short Euro (FXE), France (EWQ) and SPY
Midmorning today, it looked like the bulls were once again fully in charge of the SP500. The index traded through 1,425 and appeared to be on pace to close at a new yearly high . . . and then we reversed. From the highs of the day, the SP500 is now off 0.85%.
In our models, this type of a move is significant. It is called an “outside day” and occurs when the market tests the prior closing high, fails, and then closes below the prior closing high. In this case, that prior closing high is 1,419.
In the chart below, we’ve highlighted our current risk management levels. The sell TRADE line is at 1,419, the buy TRADE lines is 1,410, and the buy TREND line is down at 1,384. In essence, if 1,410 doesn’t hold . . . look out below.
We’ve been clear on our view that with global growth slowing, this isn’t the place to chase low volume equity rallies. In particular, chasing equities at a time when the VIX is sub 15 has been exactly the wrong call over the last three years. Currently, the VIX is up 7.4% on the day to 15.07.
For those looking to add some short exposure to your portfolios, we are currently short these individual stock names in the Virtual Portfolio:
- Freeport-McMoran Copper and Gold (FCX);
- Caterpillar (CAT);
- United Airlines (UAL);
- Dominoes Pizza (DPZ);
- American Express (AXP);
- MGM Resorts (MGM); and
- Morgan Stanley (MS).
Daryl G. Jones
Director of Research