Worsening macro and technical divergence sreams for a short
Sticking with the bearish case for US Equities I've made for most of 2015, I'm currently selling short a pretty significant position in SPY versus a long basket of Equities and bonds from the rest of the world. My rationale:
1. US Equities are still rich versus rest-of-world stocks in P/E ratios, even after the steep outperformance of DAX and NKY (among others) over SPX.
2. Real Money keeps adding big time to European and Asian mutual funds whilst withdrawing from US on the margin. The trend so far is evident on the divergence in stock prices and I expect it to continue.
3. Macro data in US keeps surprising on the downside over and over again... it made sense to 'buy the bad data' as a Fed put (specially on support zones), but aside from the macro impact, there's a significant impact of worsening economic conditions on corporate earnings that hasn't been priced into this market, IMHO.
4. Big divergences in RSI and On Balance Volume have been developing since late 2014; the market keeps climbing higher with diminishing momentum and buying volume.
4. Signs of strong resistance above 211 on SPY / 2110 on ES/SPX; since early March, the market hasn't closed decisively over this area.
Initial targets of 207.50 and 206.60 as signals of money supporting the market. If broken, next targets will be 205 (lower Boll-band on the daily frame); 202.32 (200-day MA); and whatever price SPY will be trading at when it hits 30 on the daily RSI. Will use trailing stops accordingly if the position moves in my favour.
Good luck trading.
1. US Equities are still rich versus rest-of-world stocks in P/E ratios, even after the steep outperformance of DAX and NKY (among others) over SPX.
2. Real Money keeps adding big time to European and Asian mutual funds whilst withdrawing from US on the margin. The trend so far is evident on the divergence in stock prices and I expect it to continue.
3. Macro data in US keeps surprising on the downside over and over again... it made sense to 'buy the bad data' as a Fed put (specially on support zones), but aside from the macro impact, there's a significant impact of worsening economic conditions on corporate earnings that hasn't been priced into this market, IMHO.
4. Big divergences in RSI and On Balance Volume have been developing since late 2014; the market keeps climbing higher with diminishing momentum and buying volume.
4. Signs of strong resistance above 211 on SPY / 2110 on ES/SPX; since early March, the market hasn't closed decisively over this area.
Initial targets of 207.50 and 206.60 as signals of money supporting the market. If broken, next targets will be 205 (lower Boll-band on the daily frame); 202.32 (200-day MA); and whatever price SPY will be trading at when it hits 30 on the daily RSI. Will use trailing stops accordingly if the position moves in my favour.
Good luck trading.
