Daniel Urdaneta

SPY short on weak technicals, bearish news

I reinstated my short on SPY             this Friday at the open, after riding the first down-and-up wave of the year. My rationale:

Technicals: RSI divergence on since the early December highs; strong rejection of the Pivot point at the 205.50 area, 206 seeming to be the area of strong selling pressure. The market bounced off the Ichimoku Cloud top on Tuesday, but it seems like we are going to retest next week. Plus, my take on the two-day gap up in equities is that the price action felt more like short-covering than consistent demand for stocks.

Fundamentals: US Economy still on its way to full employment, but weak wages (-0,2% on December and only +1,7% y/y) may weigh on corporate results come earnings season, starting on Monday).
- Lots of potentially disrupting noise coming from EZ (reports of a QE program that may be smaller than market expectations),
- Greece (Grexit being discussed again before national elections scheduled for Jan 25th),
- Venezuela (fallout from the crash in Oil             and political instability ahead),
- Brazil (Petrobras corruption probe continues and more companies targeted, plus OAS             default and official sanction for Odebrecth).

Overall, I'm positioned to take advantage of an above-average chance of stocks to continue going into the red for the month. Initial target set at 199.75 (S1 on Fibo Pivots and short-term strong support), extension to S2 (196.15) if the news confirm the bearish sentiment. May consider staying short if the market can't lift above the Ichimoku cloud top, but will cover after hitting sub-30 on the daily RSI as the market will probably mean-revert when that happens.

Long-term I'm mixed on SPY             , since remaining long the market has proven successful for so long; besides, dovish Central Bank's talk has lifted stocks on each an every dip so far, and I can't find a reason for that to change this year (so far). On the other hand, take a look at this... http://www.zerohedge.com/news/2015-01-07/10-key-events-preceded-last-financial-crisis-are-happening-again

Good luck!
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