As I warned in my note last week, SPY rallied up to its 15min bull flagpole resistance ~$184.5, where it failed to breach and therefore affirmed the complex fulcrum top. This classic, bearish pattern asserted itself today with a cascading -1.26% rout by the close:
Looking forward, SPY closed resting upon a steep daily rising wedge’s trendline support (>$182). The yoke of bear divergence in its momentum (MACD) and MFI seems too powerful for SPY to overcome right now.
While SPY should get a bounce off these oversold levels tomorrow, all of the multidisciplinary signals I can find suggest this may be the start of a correction. SPX has experienced only a -1.6% drawdown thus far, with December 31 (coincidentally?) marking the high.
Our portfolio is still overweight its 60/40 benchmark at 67/27/6 (stocks/bonds/cash), with beta up at 0.90 vs 0.76 benchmark, and sigma 1.00 vs 0.56.
Worth noting that Volatility ($VIX) was trading cheap most of the morning–even as the selloff started gaining strength. While VIX ended the day +9.4% @ 13.28, it remains cheap by any historical comparison. We’re evaluating a tactical $VXX position to assist us during the paring of our risk exposures. It’s something we’ll engage if SPY gets snagged on $184 resistance.
More to come…