This is clearly a contrarian, and potentially very painful trade. I'd say is best to play it with options - implied vol is at the year's lows and you will have limited downside on the position. But for those trading cash SPY, like me at the moment, here's my rationale for a short:
Technicals:
- We are close to getting overbought (Daily RSI is hovering around the high range of the "normal" spectrum). Here's a nice advantage to improve the trade's success odds.
- For the Pivot Points of the month, we are almost at R3!!! I looked the historical pivots for the last year (not putting them here, don't wanna clutter this chart), and SPY hasn't reached R3 on the recent past. Looks to me like too-far-too-fast..
- Trading on an upper and wide Bband, which isn't per se a sell signal, but it reinforces the better odds on this trade.
Fundamentals:
- ECB QE is coming on March... I expect some big guys to sell the news (just a hunch).
- Lots of noise in EM; Petrobras and Russia were downgraded to junk (Brazil sovereign may join them soon); Chinese economic data continues to disappoint; etc..
- Some big misses in US macro data in the past month are pointing to a weaker-than-forecast start of 2015. This is a two-edged sword, since bad economic data will delay the Fed rate hike (that has been discussed to death in trading desks around the world... Im getting sick of it, actually); but it will certainly weigh in on sentiment, specially if the trend continues.
- USDJPY (the "risk-on/risk-off" asset I think has the biggest correlation with SPY) has been stuck in a range this year, and now sitting at the middle @high 108s, A quick analysis there suggests to me it could go down (SPY would follow).
- USTs (another risk-on/risk-off aset I track and trade upon) also show bullish signs here.
I've tried to short this rally a couple times before and got burned, so I'll be disciplined with the setup. My vision remains, though: I'm not buying these new all-time highs..
Technicals:
- We are close to getting overbought (Daily RSI is hovering around the high range of the "normal" spectrum). Here's a nice advantage to improve the trade's success odds.
- For the Pivot Points of the month, we are almost at R3!!! I looked the historical pivots for the last year (not putting them here, don't wanna clutter this chart), and SPY hasn't reached R3 on the recent past. Looks to me like too-far-too-fast..
- Trading on an upper and wide Bband, which isn't per se a sell signal, but it reinforces the better odds on this trade.
Fundamentals:
- ECB QE is coming on March... I expect some big guys to sell the news (just a hunch).
- Lots of noise in EM; Petrobras and Russia were downgraded to junk (Brazil sovereign may join them soon); Chinese economic data continues to disappoint; etc..
- Some big misses in US macro data in the past month are pointing to a weaker-than-forecast start of 2015. This is a two-edged sword, since bad economic data will delay the Fed rate hike (that has been discussed to death in trading desks around the world... Im getting sick of it, actually); but it will certainly weigh in on sentiment, specially if the trend continues.
- USDJPY (the "risk-on/risk-off" asset I think has the biggest correlation with SPY) has been stuck in a range this year, and now sitting at the middle @high 108s, A quick analysis there suggests to me it could go down (SPY would follow).
- USTs (another risk-on/risk-off aset I track and trade upon) also show bullish signs here.
I've tried to short this rally a couple times before and got burned, so I'll be disciplined with the setup. My vision remains, though: I'm not buying these new all-time highs..