Credit Or Debit

Something has been brewing in the credit markets that may have finally caught the attention of equities. The chart below should never look like it does. Risk-seeking credit, as represented by JNK and HYG, has retreated back to the price level of 12/31, while SPY and IYG, representing the S&P 500 and the financial sector respectively, are still up in the clouds.

While this is an apples-to-apples comparison of ETFs, the message is clear: should SPY and IYG follow credit into a Risk Off scenario, the S&P would be trading at 1400.

Now, there was a nice bounce in the overnight session which is great for me because I bought some SPY calls as the S&P tested the 38% level yesterday, but this is only a trade against my VIX position. I will dump them this morning. The market could test as high as 1507-1510 and would get bears excited for a head & shoulders pattern.

Europe got crushed yesterday and Asia followed with Shanghai being an exception.  Today Europe is higher, but feels bouncy rather than impulsive.

I merely think, to continue my feelings from yesterday, that there is a lot of air below the market allowing for a possible test of the trend line from the November lows. 1450-1460 would look ideal before another launch to what could be a completion of an ending diagonal pattern above 1550.  

1400 though? That would likely signal Game Over -- at least for the ending diagonal pattern.

Exciting times look like they're setting up. I am trading less but trading bigger because I have a specific goal in mind.

Again, by Ari Kiev, late author of Trading To Win:

Commitment implies a willingness to promise a result when there is no guarantee of the outcome. Only after overcoming the instinct for self-preservation can you really achieve success. Commitment means putting yourself into a situation where there are no alternatives other than to create the result you have promised.