Bubble, Overbought: SP500 Levels, Refreshed

Takeaway: You just saw 40 handles of upside from our 1842 oversold signal and now you have 30 handles of downside from our overbought signal.

Editor's Note: Hedgeye CEO Keith McCullough released the following note on April 01, 2014. The Nasdaq has fallen approximately -5% since 4/2. Follow Keith on Twitter @KeithMcCullough.

POSITION: 8 LONGS, 8 SHORTS

In my last SP500 Levels note, “Bubble Up” (March 26th) I signaled that we’d like re-test the all-time-bubble-highs. Now that bubble is signaling immediate-term TRADE overbought.

Bubble, Overbought: SP500 Levels, Refreshed - bubble pic 

While buying-the-damn-bubble #BTDB felt pretty darn good at the beginning of last March, Biotech and Social Media stocks were only down -15-45% from that prior capitulation high. I trust no one forgets that. Risk happens fast.

Across our core risk management durations, here are the lines that matter to me most:

  1. Immediate-term TRADE overbought = 1885
  2. Immediate-term TRADE support = 1854
  3. Intermediate-term TREND support = 1823

In other words, you just saw 40 handles of straight upside from our 1842 oversold signal – and now you have 30 handles of downside from the overbought signal.

Don’t chase beta. Fade it.

KM

Keith R. McCullough
Chief Executive Officer

Bubble, Overbought: SP500 Levels, Refreshed - SPX

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