POSITIONS: none on the SPY or Sector ETF side of the idea ledger
We came into today long defensive (Consumer Staples, XLP) for the bounce in the US Dollar. Dollar up pounds the beta trade (Oil, Energy Stocks, Financials, etc). That’s why we call it the Correlation Risk. In the immediate-term, it matters, both ways.
I sold XLP and made a few short sales that were research driven (HSIC and TXRH) because there is a rising probability that the SP500’s immediate-term TRADE line of 1451 snaps. If and when immediate-term performance chasing snaps in Equities, you’ll see the kind of selling we saw yesterday in Oil. It happens fast.
Across our core risk management durations (TRADE, TREND, and TAIL), here are the lines I am focused on:
- Immediate-term TRADE resistance = 1474 (Friday’s Bernanke short squeeze high)
- Immediate-term TRADE support = 1451 (under attack)
- Intermediate-term TREND support = 1419
In other words, if Growth and Earnings Slowing weren’t a fundamental reality at this point, I’d be buying this dip. But they are, and dips turn into draw-downs when the least amount of people are positioned for them.
2007’s Lessons remain crystal clear in my mind. Eventually, hope for central planners to “smooth” the gravity of the economic cycle slowing runs out of catalysts. That’s why long-term tops are processes, not points.
Keith R. McCullough
Chief Executive Officer