The US Senate has adjourned and that means the government is still partially closed as the Senate will not come back until Thursday. The president is doing this to save face; he knows he's not going to get his wall. One wonders how much his base really matters to him at this point. Well, I don't know what he knows but I doubt coherence.
A follow up to Friday's posts about the SPX 2400 area. ES/SPX 2390 to 2430 is central to the volume area for 2017. While that can mean next to nothing to a frightened investor and while some very good traders held short at Friday's close, other short term traders feel that they are overstaying their welcome in such an unrelenting decline. They view a short at SPX 2400 as pretty risky, even in the absence of buyers and even with a US administration that is getting crazier by the minute. Being flat on Friday, however, was just a sign of good, common sense risk management.
This is just the opinion of a single set of eyes and a naturally limited frame of reference. Some are so adamant about the poor risk-to-reward odds of staying short at Friday’s close that they wouldn't even feel blue if we dropped to the 2009 based trend another hundred points down. We do still have to live through the overseas reaction to Friday’s close. Fear of short-covering rallies may be a symptom of being brainwashed by previous, violent snapbacks; a phobia developed in the years when there was more reason to hope for economic expansion, earnings or cheap money/ample liquidity instead of quantitative tightening. And then there is the interest rate thing. Heavier aggregate debt increases the effect of each rate rise. The past few weeks’ selling was predicated on a bunch of stuff that we have been arguing about for years and that became more important in the absence of cheap money. Still, we short-termers trade expectation and interpretation or more specifically, perceptions over and above underlying realities. Many of us have been so conditioned to irrational market behavior that we can hardly believe it when we encounter a bout of something that begins with a rational sounding take on the economy - or whatever it is that made participants react so assertively to the beginning of the bitter end of cheap money, fears of a cycle peak, increasing monthly QT (50B/month started in Oct) and the detrimental start of a trade war that has the potential to last into 2020. That potential, by the way, might be dwindling alongside our leader’s apparent sanity and the Chinese know it. They could wait things out if the world economies will cooperate by not imploding.
Whatever perceptions led to that back-off from SPX 2800 on 3 December, there's just a feeling we get when we are pushing on direction in a blue-faced market that has not had a change to inhale and get some fresh oxygen to its brain. That’s how a short term swing trader might feel at 2400, even though he or she is well aware we could slide to the 2300 area. It’s about overstaying one’s welcome. Now if a trader wanted to target 2370 with a tight stop then sure, go for it but I wouldn't do that in this steep a downtrend unless it was a trade taken on the open and closed out at the bell. It's all relative; there are clearly people who are very good at this stuff and everyone has their own style. As for intraday stuff that’s a whole other game.
We have extremely bearish moving averages like that 50 day but depressed momentum oscillators. Oscillators can remain depressed, of course, and until you see some serious buyers step in (preferably on seriously positive catalysts...yeah, right), every countertrend rally will be viewed with suspicion. That post Buenos Aires bump that came near 2800 and got slammed a few days later is still fresh on our minds. Note that the 50 and 20 day moving averages did not turn up during that countertrend rally or false breakout from the trend line. Investor sentiment is extremely bearish too -- but as with oscillators, sentiment can stay pinned to the floor as long as fear builds.
There is that potentially horrid SPXmonthly candle staring us in the face. Outside bear candles are often followed by lower prices the next month. Then there are those SPX weekly candles. Goodness! Now of course some swing traders will not wait for all the moving averages to fix themselves because they have joyful memories of catching temporary bottoms and they will concentrate on figuring out where the last congestion point was; and in the absence of those boring technicals, play their own personal game of probabilities in a similar way to how people keep shorting when things are getting more and more extended to the upside.
Consolidation or a short lived bounce from our current area would lead traders to concentrate on their preferred methods like the downtrend line, the areas of volume congestion and retracement lines while paying attention to those momentum oscillators and volume as well as the shorter term moving averages. It would but both bulls and bears on tenterhooks. SPX 2535 near YTD low would be an area of interest for bulls and bears alike. ES 2495 corresponds with the top of Thursday and Friday’s value range. Don't mistake mine for a long term bullish view but I must add that some are rightfully –imo- skeptical about this 'bear market' terminology. They say it’s too cookie cutter, too much a reification to be actionable on than on the basis that, like part of the rationale for following technical indicators, it is acted on by the collective because the idea was agreed upon by the collective. The bigger economic themes apply to all time frames, but short term traders are trading initial perceptions and reactions. As a little tuna trying to avoid sharks, I will look to the whales with their big brains to define the macro underpinnings of stockmageddon for us - mainly because of the immediate reaction to those predictions - and then try to trade it whatever direction we go. As mentioned by others in this thread, intraday stuff will be an option until serious buyers or meaningful catalysts show up in numbers or import sufficient to get the bulls excited. I just hope we don't start going sideways. Well, it can be sort of relaxing but it's not much fun for anyone but directional options sellers and others sophisticated enough to make money when the index does nothing at all.
(20min delay)
