S&P 1340 Continues to Be a Magnet, and S&P 1330 a Floor

May.16.11 | About: SPDR S&P (SPY)

This morning there was a nice risk-reward trade on the long side, as two levels of support existed: The lows of two weeks ago that I highlighted last week (S&P 1329) and, right below that, the 50-day moving average at S&P 1327. A move below both of those would definitely be bearish, but going long just above creates a nicely defined trade. If it works against you, you take the small loss and move on.

This is a very short duration trade since we're in a massive chop fest and if support breaks, we're prone to a woosh down here. Thus far the index has bounced about 0.65% versus the morning's low of just below S&P 1333 as we continue to hover around 1340.

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You can also observe that this morning's low has been effectively the same level of the intraday low the past three sessions. For now we remain range-bound in about a 20 point S&P range, with a lot of choppy action dictated by currencies and not much to do other than take short term trades.
In a normal era for markets, I think the bears would feel emboldened, as many of the momo names have broken down, the commodity trade has been flushed aside from dead cat bounces, and we've seen a rotation into defensive names of late. However, anyone who has doubted the market's ability to pull off a V-shaped low volume bounce the past few years has been continuously smashed in the face. So there is reticence in using the pre-2009 playbook, and instead one is wary of yet another V-shape to begin at any moment. Recency bias at its best.
The wildcard remains the dollar, which has fallen back sharply today and is again pegged against its own 50-day moving average. It is disappointing action for dollar bulls, considering the breakout Friday, but the case is not yet closed on the greenback. It has seen a huge move in a week and a half, so some resting is normal.

As an aside, I mentioned Sina (NASDAQ:SINA) this morning; with today's bounce that filled an upside gap, I'd have attempted a short with entry in the $112-113 area to see if we can reach $100 in the coming week or two, with stop out over $115. You have the 50-day moving average as a resistance to potentially help out the bear case.

Disclosure: No positions