I took some time this weekend and studied the SPX500 chart to see if I could glean any insight into a future movement and the overall state of the market. The sad answer is that the chart is doing what it has been doing since April 2015: consolidating within a range between 2040 and 2100. Unexciting for traders, yet intimidating at the same time.
This past Friday, June 10, we finally cracked the 8 day ema. The next support lies with the confluence of the 20 and 50 day. After that comes the bottom Bollinger band and the 200ema. The MACD is stair stepping down but has not given an official sell signal yet, while the stochastics are overbought and could become embedded as they did from February to April.
So what does this SPX500 chart tell us?
Prepare for more of the same until we get some volatility back into the markets with the upcoming Brexit decision and the next Fed rate hike.
One thing that is staying the same with this chart (and this hasn’t changed since April) are the thoughts of the traders I talk to on a regular basis. When we are at the bottom of the channel or anywhere close to the 200 day moving average, they are nervous and wondering if it is going to hold this time. They decide to wait for confirmation. The next day, a major move could be made in Globex and then they feel like they are late to the game, chasing price. For days, they might see a strong open that fades or moves lower and leaves those who purchased stocks feeling unsure.
This action gets repeated until we reach the top of the channel, leaving those who did buy something confused as to whether this is “THE” top, and they either jettison their holdings or load up on SPY puts. And then the market goes higher for one or two days – just long enough to make the trader feel wrong about their level of protection. They sell it at a loss only to see the market turn tail and fall just enough to make their original thesis seem right again.
The above scenario is frustrating – and it is not likely to end anytime soon.
It feels like everyone is waiting for something. Most days there is no bid in the market, making it hard to swing trade options. Unless you land on the lucky stock of the day and hop in and hop out quickly, gains evaporate into thin air in a matter of minutes.
I am neither bullish nor bearish about the state of the market. While I I could make a case for either side, it is a fruitless endeavor as I would simply be prognosticating. I am content to sell out of the money credit spreads for income and protect my greatest investment … CASH.
Disclosures: I am long/short credit spreads in AAPL, AGN, AMZN, CMG, COST, EW, FEYE, GOOGL, MCK, MHK, NFLX, PSX, RL, SPX, STZ, SHW AND WHR.
Copyright: solarseven / 123RF Stock Photo
