Quite the week right? Volatility is back with a vengeance, the bears come roaring out – watch the media and look who suddenly pops up again? The usual crowd that disappeared since the last dump.
Just ignore the noise and look at the facts. What are those right now?
Let’s start the SPY etf then roll onto the futures…
Last time i said, if we don’t take back the 50sma then hold on to your hats. As you can see from the chart above the market pretty much reverse the entire gains on that huge up day, quite the move. Traders will be loving this. The red line above is the 200sma, i am expecting some kind of technical bounce when that level is tested. It maybe small, the market may pingpong between the 50sma and 200sma or the 200sma maybe broken, i don’t know, nobody knows.
Earnings season is just about the start and i find it uncanny as always that the market reaches some super interesting inflection points right at a critical bunch of new information coming online. This will be the next catalyst to shift the tape.
Below is a weekly view of the SPY etf over 5 years. We’ve not really come off much at all but it feels like it right? Again, notice the coincidence of major moving averages that we are near , in this case the 50 weekly moving average. We haven’t touched that for years so again, my expectation is that we bounce hard off that assuming outright panic doesn’t ensue 🙂
Futures, below is the daily emini /ES futures contract.
Again, we’re just poking through the rising 200sma but more importantly, look at the volume profile to the right, notice how we are right on the cusp of breaking through into the next zone below. This is an important level for the bulls to defend. Now, given that Draghi spoke over the weekend, i’m not sure how things will turn out but from my perspective, we are pretty oversold. If we did continue to rip down then i’d be looking at the 1820-1850 zone for some kind of major buying going on and that level down there is getting close to the S&P ~10% correction zone. My current take is we’ll probably have some violent turbulence going into the end of the year which is basically the fed removing the stimulus totally and the market fighting to hold on to what should be ‘ok’ earnings.
Next week, if we gap up big i’d be a bit worried, i’d rather we opened down early, flushed and then reversed. This sets things up better for a rally for the rest of the week in my view.
Below, a broader view again of the /ES mini, this time a weekly chart. Trend is definitely up still up the market is starting to ‘back and fill’ by the looks of it. Notice how rarely the market hangs around 1 standard deviation from the mean, especially on the downside which is where we currently are. The odds are again that we should bounce from here, if we don’t….be calm and wait for the next entry.
Finally, a stock related chart. There are some great value out there already using simple screeners. The energy sector has been smashed and it may well continue. That said, you can find some gems already, looking a few years out i think BP for example is getting to a really interesting price level. I picked some more up last week and will do so again soon.
Here is a chart to show how extremely oversold it currently it is…
Granted it has breached the 200sma but if you are looking for something long term, this one pays out a great dividend, plenty of cash and eventually things will settle down. There are plenty of other examples like this. Would i put all my eggs into the energy basket? No, however where there is panic, there is profit to be made.
Have a great weekend.
Happy thanksgiving to all my fellow canadians.