$SPX: Market Musings

FX:SPX500   S&P 500 Index
118 2 2
Well we came pretty close in calling a top with the sharks in the water idea which suggested 2122 would be an interim top and after redrawing it was nuts on because I was a bit careless with one of the points.

Anyway, it was apparent the market was starting to roll over and on the four hour chart there was a bit of a head and shoulder pattern suggesting a move down was likely. I took a small trade yesterday at ES_F 2016 and held it overnight and when it made a double top on the 30 minute candles at 2103 I added to my shorts and flattened close to the bottom. I could see buying coming at the lows of the day but did not take any longs.

Up until Wednesday, the market was definitely in a "risk on" mode with small caps outperforming broader indices; high yield junk bonds increasing in price; high beta funds outperforming the market; and oil             prices constructive. However, some of the internals were becoming stretched particularly the number of stocks making 52 week highs (3 standard deviation above the mean), price momentum and the percentage of stocks trading above their 200 DMA. Some of the other internals were high but not extreme.

As we speak, I think today's pullback is likely more technical than anything else notwithstanding the "pundits" attributing softness to increased risks of a Brexit and softness in oil             . It dipped below the 23.6% retracement levels which is when the buyers stepped it permitting the S&P             to close well off the lows of the day.

After retesting the 2108 area (hopefully) we could easily visit the 38.2% or 50% levels but for this to be a waterfall event, which some are suggesting, there must a fundamental shift in investor sentiment (underway) as we saw when the $SPX             tagged 2111 and struggled thereafter. Without looking at oil             , I know the three other measures of risk on reversed and sentiment became "risk off" enabling the market to shed 86 pts.. And for this to crater, we need to see the same lasting change in sentiment.

If $RUT: $SPX             continues to fall, if SPHB:$SPX continues fall, and if the price of junk bonds ( HYG             ) continues to fall we have confirmation that a regime shift has occurred. Two of the three have fallen for two days and, hopefully, we see a persistent             decline so we can all profit from a decline in a richly priced market. And as a concluding note, the second half of June has not been kind to the market.

Thanks for reading and questions and comments are welcome.
The US Dollar is taking off upwards, that alone is enough to kill the stock indexes.
I watch the USD and noted the two days of strength but prefer the measures mentioned. But if it the dollar works for for you great. The only point I am making is that we want to see persistent weakness in measures of risk off to be confident of continued declines in the market. And while trend lines and harmonics are great, its sentiment in the broadest sense and whats going on in different asset classes that drives market prices. Thanks.
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