So this morning politics, trade and global growth are the “fears” that are rattling the markets. Friday it was “cheers”. We are stuck in this blender of emotions and have only a chart to guide the way, visually at least.
First, let’s start with some preliminaries. The US dollar is firm again this morning and has remained in an uptrend per an update we had when it was declining toward the 200 day moving average. It appears its down leg may be over. If it were to remain firm the US dollar could pressure global stocks and some US sectors.
Sentiment, as we covered this weekend is over bullish again. A knee jerk back the other way from the epic over bearish readings of Q4. That is a negative for the sustainability of the bull leg. It can however, get more extreme over bullish.
As we noted by all those daily charts in NFTRH 535, key resistance is up above. Below those levels the market is still generally in a downtrend and a correction/bear (ref. the weekly charts). The points I tried to make are that a) only a break up through those levels takes out the bear and b) the market and its need to keep as many people as possible confused, is more likely than not to push that envelope (i.e. test resistance) in my opinion.
This morning’s headlines amplify for casino patrons why investor “fears” (and corresponding and completely normal stock price pullbacks) are in play. But the rubber will meet the road with a hold or failure of the tentative support areas the market created last week, not with whatever fear or joy casino patrons are intellectualizing on any given day.
Using SPX as the example we can see that this morning’s projected open of 2653 is still well above former resistance, which is now tentative support. That area includes the lateral resistance that was taken out on Friday and the SMA 50. It is only tentative (i.e. not time tested) but it needs to be taken out to re-signal the correction (and Friday’s move a bull trap).
So maybe today is support test day or this week is support test week. Maybe it holds and maybe it fails. If it holds I’ll probably hold my SPY short and add to it higher. If it fails I’ll certainly hold it and possibly add (depending on how much selling I do elsewhere).
Another factor is that the precious metals have been acting ‘counter’ to the relief rally lately and that is as it should be (for a constructive view on the miners and metals). I am keenly aware of HUI’s intact uptrend but some short-term downside potentials (per a recent update and NFTRH 535). The point is that a ‘long miners’ strategy worked fairly well against a bearish stock market in December. As noted in NFTRH 535, a hit of the lower channel line along with a bear market might just set up a little table pounding. Let’s let it breathe. The stock market is as of now above support.
Meanwhile, we have a stock market looking to test that break above resistance. Was it a bull trap? The test would tell. More to come as the market spits out its inputs, but for now it’s SPX 2625 +/- as support and the SMA 200 (2741) and 2800-2815 as resistance. Those are the parameters to watch.