Yesterday morning, I mentioned "I'd like to see the S&P decisively below 1132 to show harmony with bonds. Until then we risk another thrust higher."
The S&P went to 1131.87 on light volume and reversed up. Furthermore, the downthrust was an exact 1:1 proportion of the downthrust from the 1157.16 high last Thursday.
As a structural bear (I feel this market is built on a foundation of sand), I do not like this one bit. This feels like corrective action.
I do like the fact that I woke up to a cut in Japanese interest rates and no cut in Australian interest rates, neither of which had their intended effect. JPY strengthened and AUD weakened. This feels like like FX players are starting to discount continued euphoria.
Watch the USD very carefully here. With gold, silver, EUR, AUD, and several grains & softs at sentiment extremes, a turn up in the dollar (also at an extreme in sentiment -- nearly everyone is bearish) could bring about a violent reversal across multiple markets.
I will be looking to buy any dip in the S&P with calls and, if correct in the trade, will add to my VXX position if the S&P can reach a new recovery high.
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