#Bubbles: S&P Levels, Refreshed

POSITIONS: 5 LONGS, 7 SHORTS

 

One of the main reasons why I haven’t written you a “SELL (SPY) Levels” note in a while is that I wasn’t getting an immediate-term TRADE overbought signal. Now I am. Timing is part of the #process.

 

Rather than rehash my fundamental view on why the Russell 2000 (IWM) is #bubble (that already saw its 1st phase of popping during its July-Oct 15% draw-down), I think this is as good a spot as any to call the SP500 a #bubble.

 

#Bubble? Sure. What better spot to call it what it is, other than the all-time high?

 

To put the immediate-term short-covering capitulation in context, here are the levels that matter to me most:

 

  1. Immediate-term TRADE overbought = 2050
  2. Immediate-term TRADE support = 2001
  3. Intermediate-term TREND support = 1975

 

#Bubbles: S&P Levels, Refreshed - SPX Levels refreshed

 

In other words, whether you are a short or intermediate-term investor, there’s anywhere from -2.4-3.7% mean-reversion downside from 2050. Memories of the -10% draw-down (SEP to OCT) are short, so I’m thinking -3% could happen slowly, then all at once.

 

Both Volume (decelerating on UP days) and Volatility signals (my TREND signal for VIX remains bullish) within the US Equity market are more glaring now than they were at the end of September. My mistake then was not shorting SPY, and just staying with IWM.

 

To put this epic volume signal in perspective, at the all-time closing high of 2041 (SPX) yesterday, Total US Equity Market Volume crashed (down -26% and -46%, respectively, versus its 1-month and YTD averages).

 

To be balanced, if you think the word #bubble is too aggressive, just call this performance chasing level of the SP500 a Liquidity Trap.

 

KM