It’s hard to be bullish right now.
The S&P 500 closed at 2713 yesterday. That’s below the support of its 50-day moving average and its 9-day exponential moving average. So, the odds of a retest of the February closing low near 2581 have improved.
That means the scenario I laid out yesterday – which projected a move back up towards the 2800 level – isn’t going to happen.
That’s too bad. It would have set up an irresistible short trade. But we have to keep the bigger picture in mind. And the bigger picture involves a retest of the February low on the S&P near the 2580 level.
If/when the S&P tumbles towards that level, I’ll be looking to aggressively buy stocks. Until then though, I’ll happily sit on the sidelines.
The odds simply don’t favor a trade on one side or the other. Technical conditions are neutral. The price action doesn’t favor a move in either direction. So it seems to me that the best trade is no trade at all.
Aggressive traders don’t like that opinion. They want to be involved in every move – higher or lower – in the S&P 500. They want a definitive opinion. But I can’t give that to them.
All I know for certain at this point is I’m willing to short stocks aggressively if the S&P 500 approaches the 2800 level. And I’m willing to buy stocks aggressively on a move back down towards the February lows. I’m not willing to trade much in between those levels.
That might be useful to you. Or it might not. But that’s my trading strategy for the next couple of weeks. I want to buy into extreme weakness and sell into extreme optimism. I don’t mind sitting on the sidelines and waiting until the market chooses a direction.
That’s the best strategy I can think of heading into the FOMC decision on interest rates on Wednesday.
Best regards and good trading,
Jeff Clark