Time to Reset

The last two weeks I made it pretty clear to Buy Every F’n Dip (BEFD). Unfortunately for those not well positioned there wasn’t much of a dip to take advantage of. Here is last weeks post. The easy part (for the time being) is likely over. Looking out several weeks though, the market looks set up to keep moving higher. In the short term some back and fill/chop is very likely.

Breadth: Not much to say except looking out longer term, breadth is keeping up well with price, which suggests this new leg is likely to continue higher. On a shorter term bases (next week or two), SPX is overbought and likely to do some slow choppy back and fill.

SPX stocks above their 200-day MA: This is more of a longer term measure. As I spoke about a couple weeks ago, we wanted to see this measure expand along with higher prices. So far so good. Screen Shot 2016-07-16 at 11.23.45 AM

SPX Stocks above their 20-day MA: Even on a shorter time frame, breadth is keeping up with higher prices. It is currently a bit extended, which is why the easy part is likely over for now. Screen Shot 2016-07-16 at 11.21.48 AM

SPX stocks above their 5-day MA: This is a much shorter time frame look and you can see that stocks above their 5-day MA are already beginning to back off. This for now is healthy consolidation. When the market is very strong and breaking out (as it currently is), it doesn’t take much to get it oversold enough to set itself back up to get to new highs. Thus, this is one measure to keep an eye on in the shorter term.Screen Shot 2016-07-16 at 11.23.07 AM

SPX stocks at 20-day highs: Similar to the above, during a strong market it doesn’t take much of an oversold reading to get it going again. Thus, here is another short term indicator to keep an eye on for an oversold condition. Screen Shot 2016-07-16 at 12.45.24 PM

Open Interest: Given this is a weekly expiration there will probably be shifts during the week, but at the moment high puts sit at 215 and 213. High calls at 218 and 220. 213 is right above the breakout level so if price gets below there, there will likely be a good risk to reward long opportunity (at least for a bounce). Alternatively if price gets above 218 it likely won’t hold, especially with the market being in overbought territory. spy

In Sum, looking out a few weeks the outlook appears bullish with new highs very likely. However, the next couple of weeks will likely see some chop as the market grinds a bit lower and resets itself. Once things begin to look a bit scary again, that will the be set-up to get back long for new market highs. In other words, if you are a short term trader do your best not to get chopped up for the next couple weeks so you have money to put to work for the best trades.

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