The collision of global markets and social mood

Tuesday, February 5, 2013

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.

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