Diary of a Financier

Intraday update: SPY ytd meandering nears crossroads

In Capital Markets on Wed 8 Jan 2014 at 14:45

Important intraday note on the S&P 500 nearing a critical juncture…

While remaining in a throwover top above its long term rising wedge, SPY’s daily chart is back under the yoke of 2x bear divergence.  The 15-minute fractal shows the primary pattern at work: the start of a bull flag breakout >$183 SPY daily/15min/1mintrendline resistance yesterday, with bull divergence.  Also within that 15min chart, a shorter-term, complex fulcrum top has developed.

Given that 15min complex fulcrum top within the larger bull flag, we can at least expect a rally up to dual flagpole and neckline resistance @ $184.5 (+54bps) this week.  The reaction at that threshold holds the key–either a breakout (completing the bull flag) or a breakdown (fulfillment of the fulcrum top).  Note that I’m disregarding the smallest, 1min H&S top ($183 neckline) therein because of the larger forces at play here.

~~~~

I usually only publish these entries when we’re at a crossroads such as this.  Particularly this early in the new year, definitive moves in the SPY can set the tone for the rest of the year.

After some recent trades, our core portfolio remains overweight its 60/40 benchmark at 68/27/5 (stocks/bonds/cash), with beta up at 0.91 vs 0.76 benchmark, and sigma 1.06 vs 0.50.

I’ll update my thesis at some point soon–maybe  in a Bull v. Bear feature later this week.  I can say that I’m now bearish for the short term (i.e. after SPY may rally right up to $184.5 resistance), due to a unanimous agreement between fundamentals and technicals.  We will be pulling-back our risk exposures to benchmark-weight over the coming week(s)–taking our time to raise the cash since this Euphoric state features rewarding upside amidst volatility.

Part of the derisking exercise will include a swap of our High Yield ($HYG/$SJNK) and Floating Rate Bank Loan ($BKLN) positions for Municipal Bonds ($MUB)–overhauling much of our fixed income sleeve for taxable accounts.

–Romeo

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  1. […] (−)- The base case bear outcome is developing exactly as envisioned, with a daily/15min bull flag devolving into a complex fulcrum […]

  2. […] I warned in my note last week, SPY rallied up to its 15min bull flagpole resistance ~$184.5, where it failed to breach […]

  3. […] first noted the potential for a correction two weeks ago, which was punctuated by a multifactor sell signal […]

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