SPY, Why Are You Long?
Dragonfly Capital | Jun 15, 2014 01:37AM ET
I have not been asked this question yet but some days it seems it will be coming. With investor bullish sentiment at prior high levels, the bull to bear spread at extremes, no volume in the market which is overbought, Mercury in retrograde and Neptune stationed direct (no idea what that means), a full moon tonight and Friday the 13th, the market has a lot stacked against it. If it goes up today you had better be balls to the walls be long with all this going on.
But seriously what does the future look like. Is the top in or is there room for more upside? That answer depends on your timeframe. Using the SPDR S&P 500 (ARCA:SPY), as a yardstick the daily chart has topped at 196 and is pulling back. Will it continue? The long red candle (bad thing) suggest there may be more downside in the near term. And if you are a day trader then that may be important to you. But a pullback even to retest the 190 break out level on this timeframe keeps the trend higher intact.
The weekly chart shows a strong trend higher with price extended from support. But, that support could give it even a little more room than the daily chart on a pullback and still remain bullish. The trend is roughly following the 20 week Simple Moving Average (SMA) which is pretty close to the 100 day SMA if you want a proxy on one chart. Like the daily chart the price on the weekly chart has worked off an overbought condition, a positive.
The monthly chart is where the big debate comes in. In the long term the trend has been and looks to continue to be higher. But some believe that the move above the break out line without any pullback cannot sustain itself. That the breakout level needs to be retested. A retest may come but it is in no way a requirement. One set of investors see the breakout higher as move out of a 10 year range. They will not sell quickly. The momentum indicators are running higher. They are at high levels and where price has reversed in the past but that does not mean they and price cannot continue to higher.
So what to do?
1. Stay invested.
2. Protect positions with stops and options (collars or protective puts).
3. Pay attention to your positions, not the broad market.
4. Don’t be afraid to enter a new position that is moving, with the protections above.
Get The News You Want
Disclaimer: The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.