Play It As It Lies: SP500 Price Momentum Shifting

For now, price momentum has trumped interest rate fear (see the table below for TRADE and TREND updates, by sector study).

The SP500 finished the week up 3.2%.  As we respect price first and foremost, we have taken a small loss in our Short SPY position (-1.23%).  The interest rate hike (Rate Run-up) and dollar up move (Buck Breakout) of last week were good for stocks; markets’ closing prices did not reflect a fear of higher rates. 

For the SP500, 1099 was resistance but now it is support; 1119 is now the new resistance line and we are seeing posistive price momentum building in the market across all durations.  We now have 7 out of 9 sectors in positive TRADE zone and intend to manage risk around the data. 

The lower volume in the market moves at the end of last week, and the lower-highs being reached (relative to the prior closing highs of 1/19/10), makes for a mixed outlook and one that we will be monitoring closely as the week plays out. 

In particular, we will be observing whether or not new TREND lines of support manage to hold.  As of this morning, the US Dollar Index was trading at 80.56 and the trendline support line lies at 79.57.  Volatility is now indicating bullish for stocks and has broken its TREND line at 22.43, which is now resistance.  Gold and Oil are also testing their TREND lines to the upside, which are now support at 1,122 and $77.09, respectively.  We will look for these levels of support to be confirmed over the next 3 days.

In the immediate term, we have covered our short SPY position and bought XLK (Technology Sector ETF).  On Friday, we bought some small cap and mid cap exposure via Penn Gaming (PENN) and Glacier Bancorp (GBCI).

Howard Penney

Managing Director

US Strategy

Play It As It Lies: SP500 Price Momentum Shifting  - HPT