Thursday, May 5, 2016

Stock Market Perspective 5-5-16 - Choppy Trade Ahead?

Click on Chart to Enlarge

The chart here is SPY.  This is a daily chart.  On a short term basis here are some observations.

  • SPY has closed below the 20 day moving average, but not yet touched the lower bollinger band.
  • The price is not far up from the lower bollinger band.
  • Price is hovering a little above the 50 day moving average.
  • The 50 day average, the lower bollinger band, and the 200 day moving average are all within about 2% below current prices.
What I have observed over the years is that clusters of prominent technical averages can lead to some overlapping trade.  What I think occurs within the computerized market, is that trading programs are often made using these indicators and so orders get placed around the price points.  And the job of the market is to fill the orders.  That's were the market makers get paid.  Basically the more transactions which get executed, the better.  So in the way that all the market forces tie together, price ends up touching and reaching all those key indicators, and then often as soon as it is "triggered" price reverses, at least in the short term.  So price bounces around these technical clusters until the weaklings are weeded out and the order books are lighter.  Then the market is "free" to do what it will.

So in this case here, while there are some early signs that stocks are short term oversold, and a rebound could be imminent, my feeling is that these target indicators under the market, coming of an intermediate term high set up, will attract prices lower in coming weeks.  It may get kind of choppy for several days.

For or purposes, the SPXU inverse trade recommended a couple weeks ago already is closed at a 7.5% profit.  Depending on the fill of the SPY put option, it has possibly reached a 100% gain and exited.  Or it may be a little shy of that target.  My expectation is that with 2 full weeks of trade to go, the order will likely get filled if it has not already.

I will post any compelling set-ups as they unfold in coming weeks.


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