The News Market

I always find it interesting how technicals and fundamentals often line up at turning points in the market.  As you know, I’ve been significantly long throughout this entire run the past few months.  When the market got a little extended short term, I pulled in the reigns and raised some cash, never north of 15%, which was quickly used on dips.  This rally has gone on further than many have expected, many good traders cashed in a few weeks back and have been either sitting on their hands or trying to get short to no avail.

My ultimate target for this rally off the February lows has been 1230, although I did think we would have seen more of a pause or pullback at 1200.  Guess what, we’re pretty much there, the $SPX hit a high of 1214 yesterday before putting in a very bearish doji candle.  I began to take risk off the table yesterday afternoon as I believed everything was just way too extended, profits needed to be booked.

And then the Goldman news struck today.  We’re currently down great than 1.6% on the $SPY, not quite your garden variety sell off, but in the scheme of things, not really a big deal.  What is a big deal is that the news market is back in full tilt, and it comes at a time when technically we should start to see major resistance in the equity markets.  So, it’s time to take some more risk off the table.  I have pared back exposure today, I’m now +25% in cash after adding a long position in $SWKS today.

Here’s what I’m looking for.  The $SPY will rally back up to the declining 5 day moving average over the next few days which can be found around 120, at that point I will watch very closely for resistance and a roll over.  If it fails that level, I will be a big seller, pulling exposure back to around 40-50%, possibly less.  That type of action, a lower high, could mark the end of this rally and a signal that consolidation if not a major pull back is upon us.  I was always taught that you make your living by collecting alpha in down markets by playing defense and striking hard and fast when the market is healthy.  It is now time to get defensive, I’ll be watching a failure of the 20 day moving average very closely as well.

It’s not the news you should be paying attention to, it’s how the market reacts to it.  The market is obviously spooked, and if a negative feeling about Goldman Sachs $GS persists beyond a few days, it will put a vice on this market.  More on the news itself late, just because I love bashing idiocy.

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