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Short Equity Potential Builds

Headlines and Open Positions:
Sentiment towards equity risk will be challenged in the near-term by the fact that earnings season is coming to an end. News headlines may find it easier to focus on low-volume consolidation, rather than year-end potential, which in turn could generate a period of equity indices weakness.

Trade desk signals highlighted the potential in a break lower from 1333 on the S&P 500 (1315), below 7150 on the German Dax (7125), and below 9500 on the Japanese Nikkei (9460). These areas were all broken this week, and as expected, global equity sentiment has turned bearish in the near-term.

SPY (133.70), the exchange traded fund (ETF) that tracks S&P500 momentum will very likely test support at 132.50. Expectancy is for a move lower to test support at the bottom of the recent trading channel. There is very little support if 133.00 breaks, which will draw in targets of 129.50 and 127.50 if momentum builds in global equity selling.

A break above 1355 on S&P 500, and above 135.50 on SPY, which have been highlighted as major resistance areas now look to be a long way off. Any open long-equity positions should be closely monitored while recent price action is absorbed, as the next break of note will carry a lot of pent-up momentum, and that does look to favor the short side of the equity market.

S&P 500 Price Action:
Strong buying activity was seen at 1330 on S&P 500 trade in April and May. The market has moved lower and taken out this major swing point area, and will now be closely monitored. Market alerts and updates will be sent to subscribers if momentum builds again.

Main S&P500 support: 1295. Main S&P500 resistance: 1340.

Daily trading range on S&P 500 is 13 points, which is above the historical norm and indicates that volatility is increasing, in low-volume markets.

ETF Price Action:
SPY trade ran into a wall of resistance in April and May at 134.00, which will now be very difficult to break. The trade desk will pay close attention to price action as the week unfolds, and does expect a lot of price gaps to form between each session close, and the subsequent next day’s open. Volatility will build.

Main SPY support: 132.00. Main SPY resistance: 136.00.

Technical Correlations:
S&P 500 20-day Simple Moving Average (NYSE:SMA) is at 1339. S&P 500 price action has a 36-month 75% correlation to crude oil moves, and a 90% correlation to the aussie (Aud/Usd) currency pair.

The last clear-cut equity signal to form and complete was issued to clients on Friday, with a break lower on the S&P 500 from the 1333 area. Traders have seen momentum build in global market equity selling.

Sentiment and outlook towards equity trade remains mixed, but does now favor the short side of trade. Price action favors a continuation of the choppy and volatile patterns recently seen in equity and ETF prices. Traders committing to long-equity-based trades at these levels need to use caution in trade size levels.

The main US ETF’s that track technology (NYSEARCA:XLK) (26.20), energy (NYSEARCA:XLE) (74.70), semi-conductors (NYSEARCA:SMH) (36.90), financials (NYSEARCA:XLF) (15.75), and emerging market (NYSEARCA:EEM)(47.00) sectors show little indication that a move higher will be easy to hold.

The detail below forms a part of the in-depth daily analysis provided to subscribers. This helps guide traders with analysis on intra-day price movement, trend, and momentum. Clients will note how regularly the Swing Point and Support or Resistance areas below are used each day.


Content taken from TheLFB Trade Plans