While the behavior of masses is proactively predictable around the 200 day moving average, that’s all we use it for – to monitor behavior.
Today, I finally covered my short position in the SP500. The next risk management question would be, if you are covering it, why don’t you buy it? So, I did. We have taken the allocation to US Equities in the Hedgeye Asset Allocation Model from ZERO percent to 3%. From a price (1086) on the SPX, the SP500 is now a long for an immediate term TRADE.
Importantly, the TRADE line of support is converging closer to our long term TAIL line of 1070. So the way I would deal with this is buying some SPY here, then again as we approach that 1070 level, but using 1070 as your stop. There is a 1.5% gap between 1070-1086, and it’s going to feel really hard to believe in this math – that’s one of the primary psychological reasons why you should believe in your bid. Fade yourself.
On the bearish side of the market, updated lines of immediate and intermediate term resistance are outlined in the chart below at 1137 and 1144, respectively. If/when this market bounces, that’s your range to be making sales – as it was in the last week.
In the meantime, don’t ask people who missed seeing this coming for risk management levels of support.
Keith R. McCullough
Chief Executive Officer