ES futures closed near the highs of the session after waffling within the week's value range. The point of control is 2791.75 and the extended session took things above the RTH close of 2791.50. SPX finished at 2792.67. Many will question the rationales for the late session buying but price action is telling us that any shorts will be initiated with tight stops and would be a gamble until there is supporting technical evidence of some kind. Sunday night's inventory will be interesting to see as we enter a week stacked with economic data, Fed Chair testimony and a litany of political threats.
There are many kinds of participants here. That is made evident by both sentiment indicators and outflow data mentioned last week. Investors and traders who got long back near the lows and perhaps added to their positions at the important retrace levels on the way up are happy but increasingly nervous. They may or may not comprehend the breadth or mentality of those who have refused to participate -- e.g. those sensible types who have chosen to be more conservative and heed the larger macro perspectives. Many short term participants from both camps are waiting for a pullback, particularly in Asian markets, before they engage in what they feel would be a resumption of the rally through SPX 2800/2815 -- if it proves to be resistant. As discussed a few weeks ago, the Sino-American trade negotiations are increasingly influenced by the 2020 election process. If we approach that level on the anticipation of mutually beneficial trade agreements and the extension of the 1 March tariff deadline, traders paying attention to the negative macro themes will go through the same trepidation that they did at 2700, which has now become sort of a base camp for the bulls.
The major indices are through the important retracements of their major downtrends. The SPX and Dow are well over their 200 day averages while the NDX just barely cleared its own last week. All three majors are well over the now slightly rounding 50 day averages. This has now become a market that will not be easy to short if it is maintained above key support levels and ascending short-term moving averages. The large run up to this point will of course be viewed as something ripe for shorting and bears might subject themselves to continuous punishment if they overstay shallow pullbacks without tight stops in place.
And be sure that bears will do it anyway for as long as the window of disbelief remains open; i.e. that space of time in-between denial, acceptance or resolution of a trend reversal or move across a threshold after a cautious approach and then breach of a widely considered point of technical resistance/support with a backdrop of a macro-driven expectation that has been accepted by a majority of medium and long term participants. Deciding on personal time frames can be tough as traders consider possibilities that may or may not materialize. Things can happen but not in a way that fits your own time frame. If buyers remain in control, bears could provide fuel for algo-driven short covering again and again, similarly to what happened around SPX 2400 when negative sentiment had received wave after wave of positive reinforcement. Obviously we are now at a much different area of technical status and repair -- but the angst over global growth remains. I keep getting emails from bears who charge high prices to remind me that everything is about to go to pieces. Their audience is of course mainly investors, but you might not be able to tell who they are speaking to if you are a subscriber to their dismal detective work.
Trade war negotiators are practicing purposeful ambiguity and there is a good cop/bad cop game being played on both sides. The president is reported to be thinking more of his reelection than about whatever advantage China may have been taking. With the hopefulness on a trade deal comes a substantial number of potential political threats to consider into the end of the month. Again, there is a huge docket of economic data and Fed Chair testimony mid-week. Please also note that there is private and public congressional testimony scheduled from the presidents former attorney/helper. Also, sources from the US Department of Justice tell various news outlets that the report on the Special Counsel's investigation into election meddling will not be delivered to the Attorney General next week and that takes one headline threat out of the equation. This is quite a mix to consider.
The bottom line: traders will stay alert and pay attention to changes and support levels. They may pare exposure on the approach to resistance points and remain aloof but mindful of what the market is telegraphing; while also being aware that not everyone has benefitted from this rally. I will update the SPX levels as they change.
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