One Perspective on the Market for Next Week

Last week here, I wrote the importance of the 210 level, which did hold during the first dip of the week. Later in the week I updated the open interest over twitter and said that 209 was becoming more relevant and in fact price reached a low of 208.98 and held. We are now back in the range that SPY mostly traded in from March to May (range 1) as shown below. Although one could make the assumption that the path of least resistance is to go back and  test the bottom of it, the current set-up seems more favorable to the upside as I will explain below.Screen Shot 2015-06-06 at 1.10.36 PM


SPX at 20-day highs: I tweeted out on Friday that we had reached oversold levels that have lead to small bounces in 2015. Although each bounce seems to produce less stocks getting to 20-day highs (and that might eventually mean something bigger), we are still at the low end where bounces often ensue.Screen Shot 2015-06-06 at 1.00.37 PMSPX stocks above their 50-day MA: This is also at levels that typically have lead to a bounce in 2015. Until there is a change in character and we can get more oversold (or more overbought) we should expect more of the same. Screen Shot 2015-06-06 at 1.03.56 PM

SPY open interest and levels of importance: This type of open interest gives a slight edge to the bulls as long as price can get and remain over 210. Price closed below 210 so any gap down has strong odds of being bought up quickly. Remaining at the 210 level doesn’t give much edge to the bulls or bears (if index trading), but above 210 and price can easily reach 212. With a change in market character and any additional strength price has room to 215 before any call resistance. If price remains below 209.50 then the odds greatly increase that price does see the bottom of range 1 (shown on chart above) at 207. spy

With the rangebound environment and 210 being of importance for many weeks it’s also very possible price continues to gravitate to that level upon any movement away from it next week. That environment, although neutral, does lend itself well for individual stocks and/or sectors to breakout. Last week I was well positioned for bonds to sell off and financials to catch a bid. With all the rotation in the markets, trying to find where the money will flow currently seems to be the best way to create short term alpha. There are some very good long set-ups for next week and how they play out is another way to gauge overall market strength  (or at least if it is strong enough to remain rangebound). For instance, keep your eye on healthcare and biotech’s next week to see if they can get follow through from their strength on Friday.

In sum, my bias for next week is leaning toward bullish; however, I want to note that I am beginning to see something that has me thinking we may finally see a pullback more of the kind we saw in 2014 in the coming weeks. More on that as things develop.

Good luck next week.

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