Daniel Urdaneta
Short

I BOT THE DIP - NOW I'M SELLIN THE RIP

FX:SPX500   S&P 500 index of US listed shares
THe S&P 500             reached it's bullish target at the 2000-2020 area (around 200-day MA on the daily chart ) with a solid W-shaped recovery not unlike the one experienced on Q32015.

There are a couple of technicals that I'm using as a rationale to open short positions from current levels:

1. Lower lows on Jan-Feb,
2. RSI about to hit Overbought on the Daily chart .
3. MACD is in a bullish trend , but losing momo (check the lower highs on the MACD histogram).

Market Sentiment:
The vicinity of the 200-day MA saw some back-and-forth during Q42015, and there's reason to believe Spoos will act the same this time; some of the main headlines/themes of 2015 (China deceleration, World economy losing steam, "limits of Central Banks", etc) are being repeated on financial media this year.

Fundamentals:
1. EPS             continue to be revised down, with Energy reporting worse than forecast losses during the last earnings season;
2. Lots of institutional selling from hedge funds and also from sovereign wealth funds. A reliable base bid is becoming an ever-present heavy offer..
3. Distortion in relative valuations: S&P 500             is just a measly 5% off its all-time highs; meanwhile, almost every other risk asset class worldwide is just off multi-year lows. EM Equities and Euro             Banks, in particular, are at levels below the 2009 financial crisis lows. This should place downward pressure on the Spoos, at least on a relative basis vs. these and other risk assets.
4. Policy divergence is still in play: The recovery in macro sentiment has raised again the implied odds for fed funds rate increases, and now Wall St             expects 1-2 hikes for 2016. The ensuing tightening of financial conditions should at least deter marginal buyers at current levels (who's gonna be willing to buy US Equities , the most expensive risk asset in the world, at prices more than 10% above the recent market lows?)


Strategy:
Since this is a counter-trend trade, and I'm not sure on which would constitute a "top" in this upmove, I'd play the trade like this:

25% of the trade allocation would be on a limit sell order from 2032 (+0,5% from Friday's close), with a stop above the major resistance level of 2090, and a target of 1840, with a cool 3.18:1 Risk/Reward.

75% of the trade allocation would be left for day-trading the ensuing market bounces. I'll have the flexibility of taking the long side strategically a couple times, but short is going to be the default stance, as long as the 200-day MA doesn't act as major support from now on (I doubt it). I usually use a stop loss of 1% against the position, and 2% as take profit, with the allowance to re-enter the trade if the played trend remains solid.

Best of luck!

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