Is today the day to go long on the S&P 500?

FX:SPX500   S&P 500 index of US listed shares
We all know that the S&P 500             had been stuck in a choppy range-bound trend since the start of the year - counting from its start on February, that's almost 5 months! We also know that the last three trading sessions have, at last, completely destroyed the stalemate. So naturally, the question on everyone's mind is: What's next?

The simple question that we all ask ourselves every day as speculators may not be so simple once we account for the fact that the S&P 500             stands on a critical junture. A fall from the 1970s could mean a straight highway to the 1820s (October 2014 lows) - the author believes that the 1900s level (August 2014 lows) seems more realistic. A recovery from where we are could lift the ever-bullish index to at least 2040s - the once steadfast support level that we tested 3 times this year.

Given the price range, any rationale trader would conclude that a short position should be in order. Why? Because if you construct a hypothetical trading plan based on the price range (enter short @ 1971, stoploss @ 2040s, Target @ 1820) you end up with a trade that has a nice R/R ratio of 2.32. Now, I know you profit-thirsty and nimble traders out there will call this a bullshit and ask, "Who would wait until 2040?" So, let's make some adjustments. If you shorted now and set your stoploss at 1994 (roughly a 1% from where we are now), you end up with a stunning R/R of 7.45. A 7.45! Who would give that up?

Although the prospect of going short sounds very promising especially after months of dull rangebound market, I would like to ask you, What are the odds?

I know China's Yuan devaluation and recent PMI numbers offer disappointing growth prospects. I am also aware of the fact the US rate hike is probably on its way (although the FOMC implied on its latest minutes that it'd rather stand aside and watch - check the Dollar index!). Furthermore, stocks don't always need a definite reason to crash. But to see a move from the 2132 (year high) to 1982, a 14.62% move, I say there needs to be a stronger catalyst before we turn 100% bearish . The catalysts could range from a declaration of bankruptcy from a major firm (be it financial or not), an extremely hawkish statement from the Fed, random outbursts of fiscal/monetary policies from China, to a systematic breakdown of the shadow banking system (Lehman Bros II anyone?).

So, what's next?

Given the rapid fall to the '2' level of the Fibonacci extension (1969.4), I have a strong feeling that a rebound is in order. What happens after is uncertain as we may climb above 2040s only to succumb to the 200MA or fall back down before reaching 2040s.

All I know is, I'm entering long position with a stop loss of -1% (1954.1) with the target of 2022 (the 1.236 extension). That should, if it works, provide me with a amiable R/R of 2.48.
United States
United Kingdom
Home Stock Screener Forex Signal Finder Economic Calendar How It Works Chart Features House Rules Moderators For the WEB Widgets Stock Charting Library Priority Support Feature Request Blog & News FAQ Help & Wiki Twitter
Private Messages Chat Ideas Published Followers Following Priority Support Public Profile Profile Settings Account and Billing Sign Out