SP500 Risk Management Levels, Refreshed...

As the market rallies from opening on its lows this morning, we have started to make more sales (long and short) in the Virtual Portfolio.

We sold our trading long position in QQQQ and took our allocation to US Equities in the Hedgeye Asset Allocation Model back to zero percent. Our view of the market right here and now (at 1159 SPX) is implied by our positioning.

Oversold is as oversold does, and we have already seen a large percentage of the price performance associated with an overdue market bounce. The question now is simple: where does this dead cat bounce run out of energy to the upside? We think the answer to that lies in the SPX range of 1165-1187. In the chart below, we show the 1165 line as it is the most formidable line of immediate term TRADE resistance until 1187.

Altogether, the bullish part of this story is that we are in the midst of day 2 where the SP500’s intermediate term TREND line of support continues to hold. That line (thick green line in the chart below) = 1143.

The bearish part of this story is that dropping from here (1159) to 1143 would be a -1.4% correction. In terms of daily risk management, since we had relatively few daily SPX corrections of 1% or more in the months of March and April, these do have a tendency to get people’s attention. A close below 1143 reveals no support to 1105 and that’s the real risk that we want to be protecting against.

If the SPX can hold 1143 for 3 days or more, we’ll cover some shorts and get longer again.

For now, The Risk Manager’s prudent decision is to sell strength, watch levels, and wait…

KM

Keith R. McCullough
Chief Executive Officer

SP500 Risk Management Levels, Refreshed...  - S P