Daniel Urdaneta
Short

2015: Bull market top? Fibo 1.618 says yes.. watch out!!

INDEX:SPX   S&P 500 Index
(Sorry, reposting to show full chart)

Probably one of the most-watched Fib extensions in the market nowadays. The fibo 1.618 extension from 2007 highs - 2008 lows ('the Great Reccesion') is so far confirming as a top for the S&P 500             . Questions about the validity of the study aside, it's accuracy is remarkable.

Technically speaking, August 2015 is shaping up to be quite similar to August '11, although in a different macro environment and (obviously) from different levels.

Some distressing technical cues:
1. Yearly Pivot Point (1960) and MA(9) (2058) are so far lost as key support points.
2. RSI (14) monthly is going below 70, and showing a multi-year divergence
3. Before August's big down candle, SPX             has shown 4 months of Distribution candles (upper wicks bigger than the candle's body), with monthly closing levels barely above the 2100 mark.

I'd be careful about buying this dip and I think there's a real chance of this market going down en masse. Some fundamentals have to validate such a bear market, though. A confidence crisis through further weakening in China and other Emerging Markets, a chaotic liftoff in the US, geopolitical uncertainty derived from the worldwide oil             crisis ( ISIS             going full-berserk, for example), or the bursting of the US HY market, would be some of the fundamentals behind such a move.

On speculation, I'd be looking to short SPX             on any bounces below 2058. Targets are Support lines (with a timeframe not exceeding the end of 2015):

Target 1: 1835
Target 2: 1615
Target 3: 1475

The other way would be buying 1 or 2-year puts on SPY             , although with VIX             so lofty I think the risk-reward in there isn't quite good nowadays.

Any feedback into this would be much appreciated. I'm stil considering on whether play this with real money or just paper trading.
Will Wong
a year ago
QE4 could send SPX to another all time high though. As it stands, the latest market sell off has already prompted Fed watchers to declare that there will be no rate hike this year.
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Will Wong
a year ago
EW charts show that the DOW is only in a major wave 4 correction with another wave 5 up.
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timwest PRO
a year ago
How much risk do you need to take to take this trade? Stop loss levels and how much time do we give it to start working?
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Daniel Urdaneta timwest
a year ago
Hello Tim. I'm still waiting to develop a setup. I'll wait to the end of the week/month to establish entry, stop loss and targets. I'd say Q4 2015 should either invalidate or confirm this view, so I'd be looking at that timeframe (3 months). Stop loss should not exceed 1-2% over the 200-day MA to confirm the view. Position size: low (so there's less of an emotional drag to let the trade run its course); low in my case would mean no more than 1 ES contract.
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Dll PRO
a year ago
I agree with the EM and HY part. SP500 has shown increasingly positive correlation with EM and HY.
I think it won't be a crush. Market just want a correction no matter Fed raise the rate or not.
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