Looks like a V
Signs are positive, but do we need a shakeout before going higher
The recovery in the S&P 500 has been impressive. Similar to the COVID crash and recovery.
Here’s a chart of the COVID crash and recovery.
The black line is the 20-day SMA, the green is the 50-day SMA, and the red is the 200-day SMA.
And a chart of today.
As they say, history doesn’t repeat but it often rhymes.
As always, I am open to all possibilities. But if we are going to make new all-time highs, I think a fast pullback of around 5-6% or so would add fuel to the fire, as it did in the COVID period. It would shake out late longs and weaker hands, and get the bears excited to put on or add to shorts. If it happens, I will be looking to add long exposure.
So, what am I specifically looking for? This isn’t a prediction, just a possible scenario, which if it occurs sets up a good risk/return opportunity.
If we get a quick pullback to around 5580 and recover within a day or 2 above 5610 (this is the S&P 500 futures) I will go long in size, with a stop under 5580. If this scenario plays out it offers a great risk to return opportunity.
Updating some of the other charts I discussed in previous notes, they are all doing what one would hope if you’re bullish.
Credit spreads have come in big time.
VIX is under 20.
XLK/SPY (Tech relative to SPY) has repaired the damaged and this now looks like a failed topping pattern.
As does SMH/SPY (Semis relative to SPY)
SPY/EFA (SPY relative to developed markets outside the US)
This all looks great. But I have a bearish position on as well. It will act as a hedge to any new longs I enter and also profit if all goes to shit again (which may happen, always be open minded). I have put options on the DAX, with a strike price of 23,000 that expire on June the 20th.
Here is the DAX chart, which looks like it could become a failed breakout. If not that’s all good, as the options aren’t that pricey, so again a good risk/reward and a hedge on any new long positions. Even if it pulls back to 22,300-22,400 it’s uptrend is still intact, but the puts will very profitable, especially if we get a quick pullback.
Stay open minded to all possibilities and manage risk tightly. The next few weeks will be interesting.
Cheers,
Marcus Grant, CFTe
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