Technician
Short

SP500: Approaching Bubble Territory?? Part 3: First Attempt

INDEX:INX   S&P 500 Index
1144 14 5
Update: Didn't take this trade, But anyway it wasn't a successful forecast.

In my earlier posts, I presented my rational behind being inclined to the bearish side on U.S. equities . Now, I am presenting the mechanics of my first shorting attempt.

There has always been a good positive correlation between short term WTI Crude Oil             and the S&P500             OVER THE SHORT TERM. Having that said, the recent downside break in oil             prices warns the it is probably the time for a correction.

The strong bearish divergence on the 14-week RSI also warns of extreme exhaustion, meanwhile, the index is hanging at the ceiling of this multi-year ascending channel .

I am risking around 2.5 percent, and targeting around 7 percent pullback for now.

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I like your parameters and would consider putting on both sides of this trade - go long oil in equal dollars as your short S&P position. Even the last trade where it didn't work "outright" would have worked with the pairs position. Here's to a good trade setup :-)
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That would be a great hedge tim,
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Nice there but still very speculative, i will keep an eye on it thanks !
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Technician TOP AlexandreFF
Yeah sure, but worth a try :)
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AlexandreFF Technician
Technician, i just made a chart, i'm quite newbie but still might be useful to give you another perspective
My opinion on SPY interesting to see.
it would be great if you could give your opinion thanks !
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Hi technician, i like your chart but i think databased has a point. I will illustrate my point of view with some historical examples:

Following chart is from the OIL (white), compared to DOLLAR (green) and SP500(orange) and correlation indicator is between US Dollar Vs DUBS ( commodity index)

So general macro economic rules are as follows and can be validated in the chart on red box 1 and 2 (not exclusively):

1- Golden rule, the dollar is negatively correlated to commodities (although box 3 and 4 shows very short term neutral to positive correlation on 34 period, nothing alarming)

2- I think the way you have to take the problem, as Darabased and you said is on the demand analysis of OIL, think of it like the copper thus making this indicator as a lagging indicator. So the following assumptions would be: a- Better economy, more demand for oil, higher prices for stocks and oil and dollar goes down. This is box number 2. b- But the other case would be higher prices in oil (because of less supply or whatever) pressuring stock prices because of expensive oil prices provoking an eventual slowing of economy, as you can see in box #2.

So in your case this should be a leading lagging indicator, that is to say a sign that demand for oil is decreasing (or supply coincidently increasing at those reversing point --red arrows on charts), but yet market not reflecting this change on stock prices. So this is definitely the definition of a bubble and your post is theoretically right! :)

But everything is saying the same thing : market is over extended because FED prints money and we don't care about macro economics, or divergence, or warning signs of a impeding correction lol....But short term i am short SPY for sure, test of supports are needed at this point.

Cheers!
snapshot
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Thanks for your input BEI, really appreciate a constructive discussion. I have to mention that it seems that my point is not that clear yet, as i am trying to spot a short term trading setup here, and thus my suggested correlation has been effective over the very short term. The story is different over a longer term horizon, as it get more complex in terms of different factors affect inter-market correlations.
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Obviously trade was a big loser
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