Futures are attempting a bounce this morning, though weakness persists in SPY, NDX, and NYA. In addition, big Cap technology stocks that lead the October rally are trading below their respective 21d moving averages. They will start the day below VWAP. Our hedges will soften the blow.
SPY Daily – Market Weakness
The S&P 500 ETF lost its mojo on Friday, closing firmly below the 9ema. The last time SPY tested the 50d, it counted as a distribution day on above-average volume. Friday printed another distribution day, while price tested the 21d. Price action in the early session is near the 50d.
The most likely scenario is a descending pattern into March. MACD will follow through and RSI will dip below 50. Momentum is with the bears now, so we’ll be seeking refuge in SPY puts on any bounce that is rejected. We will also be looking to reverse index funds like SPXU for a trend trade over the next few days/weeks.
SPXU Ultra-short S&P 500
MACD printed a bullish cross on all of the inverse funds and ETFs, with QID, SQQQ, SDOW, PSQ, and DXD, among others leading the way. We would look for any bounce to be rejected this morning, which would conveniently set up better entries in these inverse funds.
We anticipate more downside risk in the short-term.
Futures are being bought up, rallying 20 handles off the lows. Crude is lower, as are bond yields, with the 10-year at 2016 lows.
Gold is extending its bullish move, as the safety trade plays out.
We would be peeling some profits off initially as gold futures rise this morning. We would then seek another leg higher in the yellow metal if equity bulls step aside (highly likely) this week.
Watchlist stocks must hold above the 21d moving average to even consider long positions. It’s more likely that we will have reasons to play the bearish side this week. The bullish trend that started in October has broken, so we would anticipate this malaise to last a few weeks. This is not a time to be aggressive.
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