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Posts Tagged ‘S&P 500’

Dollar Rallies, Equities Retreat, And Silver Implodes

November 9, 2010 Leave a comment

On Sunday, in "Weekly Preview: Nov. 8-12",  I expressed a strong bias towards establishing Dollar bullish positions while taking a bearish stance on equity indices. Also, in addition to these core ideas, in recent days, I pointed out three individual stock ideas (one bearish & two triangle set-ups without definitive biases, click here and here), and another triangle set-up in USDJPY. So far, the Dollar has rallied smartly off the LT trend-line, equity indices have begun pulling back, the stock ideas are in a holding pattern, and USDJPY — after making a head-fake lower this morning — joined the Dollar rally by breaking out above the top-side trend-line of the triangle.

Today, what really grabbed my attention; the precious metal sector, more specifically – Silver. The volatility seen today has very few precedence.  This afternoon, silver experienced an 11% reversal from high to low in less than three hours. Gold — not having garnered the same degree of speculative fervor — was much tamer with a daily range of only 3%. What ignited the post-market sell-off in Silver was a letter sent out by the CME outlining higher margin requirements; so it seems. However, interestingly enough, upon closer inspection, the S&P, and the 'risk-on trade' in general, was under pressure all afternoon. During much of Silver's (SI) sell-off, the price movement correlation to the S&P 500 ranged between 60-100% on a 5 minute intra-day chart.  The fact is — reactions with so few historical precedence — do not occur on news of this type, which, in my opinion, demonstrates just how grossly overbought Silver is.


Silver es

Back on 10/18, I felt we were upon a decent short-selling opportunity — SI pulled back quietly, touching the 20 day ema — but, today's action created the type of reversal that spawns extended periods of volatility and price weakness. Due to Silver's volatility and wild swings often associated with inflection points, it shouldn't come as a surprise if we see a retest of today's high, 29.34, before rolling over. With that in mind, it would be prudent to consider this possibility when devising a trading plan.


Silver

Interest rates are already presenting an interesting 'fade-the-fed' trade. I know this contrarian idea is at odds with the age-old axiom, "Don't fight the fed". However, when 5-year rates  decline from 2.75%, as they were back in April, to last week's low of just above 1%, I am left wondering how much more down-side is left in this move. The 10-year rate could be carving out a bullish inverted head-and-shoulders pattern. I will continue to monitor the situation for any low-risk entry points.

Summing it up: From where I'm perched, at this time, the most explosive opportunities are in the FX markets and precious metals. Specifically, I am focused on Dollar long positions expressed through shorts in the EURUSD, GBPUSD & long USDJPY, AND Short positions most heavily concentrated in Silver, with some Gold. Additional set-ups: Long SPY & QQQQ puts; short LVS. Pending trades: NFLX and BIDU. (Trade Update: EURJPY needs to hold above 111.25 ,at this time, for me to remain constructive.)



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S&P 500 Looks Ugly Any Way You Slice It

June 7, 2010 Leave a comment

Call me Captain Obvious, but Friday's failure put the ball squarely back in the the short-seller's court.  Should we break the May low, which looks all but done, another jet lower would satisfy those who follow Elliot Wave Theory by completing a five wave sequence since the peak in April. By theory, the 3rd and final impulse wave (wave 5) completes a trend before a trend change takes place. (When I say trend change, I am not referring to a rejoining of the cyclical bull market. Rather, a counter-trend rally which will at some point set the market up for another 'short de jour')

When looking for longer term support levels I like to look at the S&P 500 Cash Index, instead of futures, because I don't trust the continuous futures contract which takes into consideration rollovers.  Support in the cash market comes in at the prior low of 1040, then 1030 & 1020 are both pivot levels from 2009, after that 1008 is the 38.2% Fibonacci retracement point from the '09 low to the April peak, followed by the psychological level of 1000.

Spx 60

Should a significant breach of the May low occur I will be carefully monitoring a plethora of breadth and sentiment indicators for cues as to when to lighten up the shorting campaign and possibly look to go the other way.

The other scenario, which I see as less likely, is a consolidation of the May sell-off creating a 'flat right shoulder' on a large head-and-shoulder pattern. As much as everyone has discussed the potential for a Head-and-shoulders formation to take shape I wouldn't be surprised if at this very moment one of the major publications isn't working on a mock cover layout featuring this pattern just in case we get a nice pretty right shoulder. I'm joking of course, but the popularity of this pattern right now makes me think either a) it won't come to pass or b) it won't come to pass in a very fashionable way.

Head and shoulder

Bottom line – Leaning short……but this is a trader's game right now, so be nimble!