I continue to believe that the best trade right now is generally not to do much at all over the next couple of days. If you’re long, it is not time to panic. SPY is still above its 50, 200 and 300 day SMA. However, it does seem like a forgone conclusion that SPY will at least test the 50 day SMA at around $105.
With the dollar appearing to gain steam, I’m definitely not buying this pullback either. I’ve been saying for a couple of months that I would not short the market while the dollar was still holding its trend down from March. Yesterday that trend was broken and we’ll see today and tomorrow whether this follows through or whether it is just a one or two day event with a resumption of the fall. If this trendline is broken, I would consider it a change in market structure from March (and the 50 day SMA would likely be taken out with it setting up for a bearish environment).
Another feather the bears have in their cap is that China seems unusually weak. China has really been leading things up and down.
FXI is still above its 50, 200 and 300 SMA but this is large cap China. The more speculative plays such as BIDU, SOHU, NTES, and SNDA have been a mess lately and all have ugly charts. It looks like the 50 day on SPY and FXI would line up so if one breaks the other likely fails too.
Over the coming days, if I feel comfortable that the dollar is rising (or at least not going down everyday) and the 50 day SMA is broken, I know I am at least operating in an environment where I can be successful shorting stocks. The dollar part is somewhat unique to this market since a major catalyst to the rally has been a declining dollar. If that catalyst is gone, it is reasonable to believe that the rally is over as well. Likewise, longs are not off the table but must be viewed with much more skepticism in this kind of environment.
This chart is a little stale, but even including the selloff after the durable goods numbers for now ES is holding the range of 1052-1063. The market lately has been breaking out of its range and reversing back in the other direction or sometimes reversing and trading back to the original breakout or breakdown direction. So watching the breakout or breakdown for a trend day has not been a great strategy the last few trading session.
Here is a snapshot of some of the companies reporting before the open. So far, it actually looks like a good day in terms of earnings even though ES is currently off about 5.
