Surprising Strength: SP500 Levels, Refreshed...

10/09/09 11:17AM EDT

The US Dollar opened at its highs, and has proceeded to back off those highs. As a result, after opening weak, US Equities have since strengthened.

For short sellers of the REFLATION trade, this has been frustrating, but respect and understand that there are still a lot of funds chasing performance into mutual fund year end AND that mathematical correlations aren’t 100%, particularly on shorter durations.

High R-Squares of inverse correlations (like SPX vs USD) are never perpetual. The #1 risk to my current market view is that, as the Burning Buck becomes consensus, that this dominating 2009 inverse correlation starts to unwind. In the long run, I think raising rates is bullish for America’s balance sheet. And don’t forget that after the Australians raised rates earlier this week, their stock market went straight UP!

For now, the risk management setup is as follows:

1.       Immediate term TRADE resistance (dotted red line) = 1080

2.       Immediate term TRADE support (dotted green line) = 1047

A close above 1071 (the YTD high) would be very bullish for price momentum. A close below 1047 puts this market’s bullish TREND line of support in play. That line, however, is a lot lower, down at 990 (see chart below).

KM

Keith R. McCullough
Chief Executive Officer

Surprising Strength: SP500 Levels, Refreshed...  - a1

© 2020 Hedgeye Risk Management, LLC. The information contained herein is the property of Hedgeye, which reserves all rights thereto. Redistribution of any part of this information is prohibited without the express written consent of Hedgeye. Hedgeye is not responsible for any errors in or omissions to this information, or for any consequences that may result from the use of this information.