June Swoon or to the Moon

Last week here I took a spin on BTFD and termed BEFD (buy every f’n dip). Is there a difference? Probably not, but I was trying to emphasize that if the market dips, but stays above 2084, it will probably rip back up. That happened 4 our of 4 times last week.

At this point the path of least resistance is still higher, but I do see some concerns with blindly going long without seeing whether 2100 holds next week. With the market sitting right around that pivotal price, it’s at a juncture we’ve seen many times before. Does it finally break and trend higher or will it once again be rejected for more of the same? Moreover, is the strength in the bond market trying to hint at something? I think there is some evidence of both, but with the market being much healthier at 2100 this time around, pullbacks should be bought.

Breadth: There isn’t much new to report on the typical measures I display that I haven’t already said. If you are new to my blog, you can go back for a few weeks to get a sense of what I have laid out before. Thus, the only thing I will display below is why being at 2100 this time appears more bullish than before. That will be followed by where concern lies in the very short term.

SPX stocks above 200-day MA: On previous occasions when SPX was at or above 2100, more and more stocks were falling below their 200-day MA. This time more stocks are above and for now continuing to gain strength. Screen Shot 2016-06-04 at 12.51.27 PM

SPX total put/call ratio (50day MA): I’ve been reading a lot about how low the put to call ratio is. I realize the chart below isn’t the ISEE put to call (which has been more extreme) and there are different ways to measure it, but I’m taking an overall general look and then you can interpret it how you wish. Below is the 5-day moving average of the total put to call ratio. It is moving lower, but no where near extremes that would suggest the bull bus is getting too full. You can see that many times throughout 2014 the market moved higher when the ratio was much lower. It’s not shown below, but the same was true for 2013. In the end I’m not saying to ignore sentiment measures like the put to call ratio; I’m just pointing out that at least by this measure there is no extreme yet. Screen Shot 2016-06-04 at 12.56.13 PM

Something fishy: Price, breadth, and possibly sentiment is supportive of further upside. However, with the rush into treasuries and utility, or risk-off stocks, breaking out on Friday, there is reason to pause. The below open interest could suggest a reason to pause as well.

SPY Open Interest: I honestly don’t know what to make of this open interest below. It’s fairly rare for price to be above two separate strikes that have almost an even amount of calls and puts on both. Thus, I’m not going to pretend to know what is going on there. Should SPY fall below 210 and stay there then I would begin to lean toward it going back into the 205 to 210 box – especially if it were to break last weeks low of 208.86. Above 210, not much call resistance till 215. spy

Taking it all in: Here’s the deal. SPX has finally stepped out and closed above 2100 for the week after many failed attempts. It is being backed by the majority of stocks moving higher and without any extreme in sentiment. That is bullish and indicative of higher prices in the future. In the short term, should it retreat back under 2100 then either it will 1) begin to back and fill some of the gaps within 2050 and 2100 (also aligns well with the 205 and 210 strikes in the open interest) and is a buy the dip opportunity or 2) there will be an increase of deterioration under the surface as price falls to indicate a correction looming. Maybe Janet will clear it up on Monday :-).

For more analysis set-ups and real time entries and exits come join us. Last week had a total of six open and closed trades (we have a couple others still open in profit).  2 losses 4 gains (553%, 123%, 87%, 36% all taking into account scaling). See here for sample weekend posts that get us prepared for the week.