My Current S&P 500 Trades While Waiting For The Full Bear Market Launch
2022.06.08 09:45
I have had a bit of writer’s block for a few weeks. I had started to write something on Trade Management, but that was so boring even I almost fell asleep while rereading it. So I figured I would just give a walkthrough of my current trade.
I’ll start off by saying that my overall market bias should be no surprise to many who’ve seen my sporadic comments over the past few months. I am leaning very bearish overall, somewhat for fundamental reasons (economy, inflation, lack of QE, etc.), but really the technical story is following along as well, despite recent market strength.
This bounce has taken us right back to the underside of some very long-term overhead resistance. Given the length of time this resistance spans, it is not surprising how much of a fight we are seeing at this level.
This could work to my benefit, painful though it may be, as it gives me time for my positions to be “vested” (trade restrictions require all profitable positions be held at least 30 days).
S&P 500 Index, Daily Chart
From a long-term perspective, I am looking at levels 4160 (support from June 2021, February, March, and April 2022), 4230-4240 (50 day moving average/50% Fibonacci retracement with Peak 4640 and Bottom 3810), and 4310 (support from October 2021, January 2022 and resistance in May 2022).
With regards to price action, I am watching this consolidation closely.
This 100 point consolidation on SPX is a fairly tight coil compared to what we’ve seen thus far this year. I circled the closest 3 comparisons I could find from this year, each time resolving itself downward.
The only thing that scares me about this consolidation is that it is occurring above the 20 day moving average while the past 3 occurred beneath it. The overhead 50 day moving average is comforting, however, and the consolidation on an hourly chart (second picture) shows descending peaks, firm support at 4080.
All that being said, I think if this bounce had any real meat to it, it would have pushed through this resistance already.
S&P 500 Index, 1-Hr Chart
I’ll give some more insight into my thoughts on this last statement. Within the past 10 years, the market has been really trained to BTFD. It’s practically a religion now. It takes a lot to remove that kind of sentiment from a dying bull market.
And we are seeing this failure to launch here after barely touching the dreaded “Bear Market” threshold back in May. Sure, we bears have our own bias and have certainly jumped immediately on “the sky is falling” bandwagon this year.
I have no doubt even that most here were some of the first to jump on that bandwagon. It doesn’t make us wrong. But we are still in the midst of this turnaround. The bullish sentiment has not been strangled from this market yet.
And so we get this consolidation action which truly sucks from a swing traders perspective (though day traders I’m sure were cleaning up), but does not convey the greatest confidence in this bounce.
That 4160-4180 area is being sold heavily and that 4080 looks like Custer’s Last Stand. So if we don’t break to the upside soon then (and I mean by end of this week), this is going to resolve downward again by next week.
I’ll go a step further and say even if it does break upward, we should expect a retest of 4180, which I believe would fail (we’ll cross that bridge when we come to it).
And if you disagree with any or all of what I said above, I would at least like to offer this advice. Respect the range until it breaks. I am watching this range intently, and like I said above I would need to see the retest succeed on any bullish breakout.
But until this breaks out of this range, I am not picking a side short term.
I want to end by also saying that due to trading restrictions (wife works for big bank, so trading is restricted, go figure), my only trade is pretty much long term moves on the broad market indices.
As such, I am basically in one big trade, adding in and holding on where I can. Otherwise, I would certainly have taken advantage of some better trades (both long and short) in the recent action.
