Diary of a Financier

SPX update: Battleground

In Capital Markets on Wed 31 Jul 2013 at 23:51

A fierce battle is being waged within the $SPX charts right now, so I wanted to drop an update.

I think we’ve averted the H&S island top, of which I last warned. However, intraday charts have morphed, and not for the better. You can see a bull reversal bubbled in SPY’s MACD (most visible in the 30-minute), but the late-day collapse in MFI seems to suggest SPY failed to sieze the breakout opportunity. As I mentioned earlier today, the 15-minute fractal shows a classic fulcrum top with troubling indicators, particularly the 2x bear divergence in its MFI:

SPY 15-min

SPY 15-min

A selloff into the close today seemed to cement the bearish mouthfeel. We now face yet another 1x bear divergence in the daily chart too:

SPY daily

SPY daily

Without a SPY rally tomorrow and a breach of $170 by the weekend, I fear a pullback to ~$158. I’m staying patient, because the reaction from here (or at that intraday $170 neckline resistance) will tell me what to do.

~~~~

Here’s where my chips lie. I have to remember that it’s a bull market, so don’t fight the trend. Our allocation remains overweight risk with 67/29/4% (stocks/bonds/cash); beta is around 0.93 vs 0.76 benchmark; sigma 1.43 vs 0.82 benchmark. Cash has intentionally accrued, since I expect a reaction from the market (one way or another) that’ll allow me to deploy dry powder.

Last week, I took gains on $YUM (+6.8%) after earnings. Yesterday, I abandoned our $BP long (-2.6% total return). Today, I shed half of our $SNE position to take gains (+47%) ahead of what’s looking like an epic battle between Dan Loeb and the Sony board over his proposal to spinoff their Entertainment segment. I don’t feel like tying up too much capital in an idea that might take as long as SNE to develop–not with the gains we already have therein. In that vein, I might revisit BP in the future, when the Deepwater Horizon spill litigation has worn on a few more months so that it’s not such dead money.

I reallocated some of those sales proceeds to doubling down on Expedia ($EXPE) and the Russell 3000 All Market ETF ($IWV). I use the latter to participate in the broad market while I wait for candidates like Brazil ($EWZ, $42 buy target) and Interactive Brokers ($IBKR, $15.8 buy target) to hit my entry points.

–Romeo

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