News Does Not Make The Market

Take a good look at the futures and you'll see around 2am they reversed what was a nice rally from yesterday's close and fell sharply, almost 20 points. Bloomberg and Marketwatch would have you believe it's because of bad earnings from Groupon, JC Penney, and Disney. I doubt it..

2am is China Time. So the news that China imposed tariffs on EU and Japanese steel is what likely freaked people out. Trade wars were implicated in the Crash Of 1929 (along with the Fed) and Black Monday in 1987. No one likes trade wars. 

For now this is bad news for my purchase of SPY 138 calls after the close yesterday. But I did so knowing full well there were other targets below, mainly 1376 (which is the "127% Fib Rule") and a 1:1 Fib extension target at 1373. News does not make the market; People do. Meanwhile the futures are bouncing hard as I write this.

There may be other things afoot. I like this chart below because its about as dead simple as it gets. The S&P is sitting on an internal trend line from April's 1422.38 high.

Interestingly, this internal trend line just happens to be a 61.8% Fibonacci extension of wave a.

Note that if wave a and wave c choose to "agree" with each other in some way, which is quite common, the S&P could stop right where it is (+/- a few points), or at a 1:1 ratio (1318.87) or a 1:1.618 ratio (1222.68) to culminate wave c/Wave B. Then a larger wave C could run to new highs which would likely mark the end of the rally since 2009.

This is just one scenario. They are plenty more. I like the wave b label for the slop fest from the June lows. I just knew that rally was crap but it kept on going and proved me wrong.

I can be just as wrong now. That's why I use options when trading against the trend.