Head & Shoulders Top in the S&P 500 Til It’s Not
Livin’ in a Trader’s Paradox
What active investor hasn’t done this before? Take a stance on where you think the market is heading, pile up evidence both fundamentally and technically to support that stance, begin to see evidence that casts doubt over that stance, start to think you’re wrong, acquiesce and do the opposite and then…boom-your original conviction turns out correct.
While that boat sails, you are left ashore.
As a trader, that does not mean I do not have positions spread out over several asset classes that are both long and short. In fact, because of my belief in commodities that never wavered this year, I’m doing good. Yet, I always want to do better.
It’s one thing to write spot on analysis. It’s another thing to trade where your fingers are (mouth is). Then, it’s yet another thing to position size correctly. And the last crucial thing is to manage the position well or at least according to the original plan.
It’s sort of the ultimate trader’s paradox: Cannot be afraid to be wrong; cannot be afraid to be right.
What stance am I talking about now?
Last week I did a piece on the potential Head and Shoulders Top in the S&P 500. I featured a chart with 3 ellipses illustrating a left and a right shoulder, plus a head.
I wrote, “If the price in the SPY rises above the head or around 202-204 level, perhaps the monstrous correction that was publicized as the “end of the world as we know it”, was simply just a plain vanilla correction.”
Since those words, I have watched the SPY go up and up. I’ve seen the average daily volume diminish. I’ve witnessed Draghi’s “boldness.” I’ve felt my conviction waver. I have not added any longs. I’ve added one small position in volatility.
All day Monday, I waited for the right shoulder to round the corner slipping away from the head moving closer to the elbow. I waited in vain.
However, with the high of the day in SPY as 203.04, according to my analysis, the Head and Shoulders remains a possibility until SPY clears 204.
And here’s why I write this today
I took a stance that the head and shoulders will play out and the market will decline. I have both fundamental and technical evidence to support my stance. Doubt has clearly been cast over my stance since I wrote that piece. Nevertheless, although I am already thinking that perhaps I was wrong, I have not acquiesced and done the opposite (gone long).
Naturally, I do not know whether or not my conviction will turn out to be correct. But I do know two things for sure-
1. I’d rather stay sidelined (except for my existing positions) while the market goes up, sit this rally out and not buy it now.
2. When and if the saleboat (not sailboat)’s Captain shouts, “All aboard (short) that’s going aboard (short),” I will jump on ship.
Here is a case where I am not really afraid of being wrong. Admittedly though, I am more afraid of being right.
S&P 500 (SPY) Tomorrow starts the FED meeting. Meanwhile, confirmed the accumulation day with super low volume. 202 key support to hold Subscribers: Positive pivots in all
Russell 2000 (IWM) Still far from the 100 DMA let alone the 200 DMA. That means if can clear 109.50 good start. If breaks under 107 though, suspect. Under 106, not good
Dow (DIA) Confirmed the accumulation day with super low volume. 171.40 key support to hold
Nasdaq (QQQ) Must hold 106 and clear 108.
Volatility Index (VIX) If this doesn’t get down to 2015 and turns up pay attention
XLF (Financials) Got right up to the 22.49 resistance again with an inside day.
KRE (Regional Banks) Has to clear 38.50 now after an inside day.
SMH (Semiconductors) 52.95 key support on a closing basis and then 52.35
IYT (Transportation) 136 now support. 138.87 the 3/07 high to contend with
IBB (Biotechnology) Tried to clear Friday’s high 262.16 but then closed beneath it. Still weak
XRT (Retail) 45.50 pivotal
IYR (Real Estate) Inside day. Must hold 74 area
GLD (Gold Trust) Every time this has a decent correction I think its time to buy more. 115 a good risk point
SLV (Silver) Will look better if closes over 15
GDX (Gold Miners) This could correct and still look good longer term
USO (US Oil Fund) 9.88 pivotal with 9.20 support and gap to 10.64 that needs to be filled at some point to stay bullish
XLE (Energy) 60.80 support and 63 to clear
TAN (Guggenheim Solar Energy) Confirmed Recovery Phase and undervalued compared to the market but want to see some volume
TLT (iShares 20+ Year Treasuries) 127.50 pivotal and now support
RSX (Russia) Subscribers: Confirmed the Accumulation Phase
CORN (Corn) Subscribers: Unconfirmed Recovery Phase
DBA (PwrShs DB Ag Fd) Subscribers: 21.02 the 200 DMA
DBC (DB Commodity Index) Subscribers: 13.44 is the 100 DMA
SGG (Sugar) Subscribers: Another big day
JO (Coffee) Subscribers: It looks like its bottomed for real. Like dips as buy opps
***Market Tone: Short-term Positive 3 Intermediate-Term Positive 6 Long-Term Positive 5
NOTE: *All starred picks are from the automated list of picks (which now includes short picks!) denote that it has one or more of the 18 chart patterns we have used on the radar screen. For example, inside day, 2 days under floor trader pivots, phase change, brick wall or return to the 10 DMA, etc.
Longs
ADBE
AGQ
AMZN**
CENX
CLF**
CORN**
CREE
CVS**
DDD**
DG
DLR**
DNR
EL**
EW
EXXI(F)**
FAST**
FB
FRAN
FSLR
GDX
GDXJ
GGP
GILD**
GLD
GME**
GOOGL
HD
HOT**
INFI**
KLAC
KORS
LINE
MAR**
MCD
NEM
NKE
NNN**
O**
PG**
SAP
SBUX**
SFM
SGEN**
SYNA
TEX
TLT**
TRMB
TTWO
YELP**
Shorts
ALXN
BIIB
BMY
CELG
CIEN
CTB
DE
ECL
ERJ
GPRO**
GS
ILMN
INCY
MON
NOW
RCL
REGN
SBAC
TPX
VRTX
VRX
WDC**
