My short position isn’t working out too well just yet.
The S&P 500 is about 10 points higher than where it was when I suggested shorting the index following last Friday’s jobs report. The market did not reverse the initial move – which was higher. And we did not get the typical pre-FOMC meeting weakness.
While the index has moved less than 0.5% against me, it still isn’t any fun to be on the losing side of this trade.
But I still like the position. And I prefer having at least a little short exposure to the stock market right here than not having any at all.
In addition to the Volatility Index (VIX) option price disparity I wrote about yesterday, the intraday charts of the S&P 500 look bearish to me. For example, look at this 15-minute chart of the index…
Here you can see the development of a bearish rising wedge pattern with negative divergence on the MACD momentum indicator. Most of the time, this pattern breaks to the downside.
And keep in mind, this is an ultra-short-term chart. Patterns on a 15-minute timeframe tend to play out within about one day.
There’s still a little room inside the wedge for the S&P 500 to work a little higher. But this pattern looks bearish to me.
And given the discrepancy in VIX option prices… Like I said, I prefer to have a little short exposure right here than to have none at all.
Please don’t misunderstand me. I’m not saying the bull market is over, or that it’s time to head for the bunker and prepare for a crash. Crashes typically don’t happen this time of the year, especially when stocks are trading so close to all-time highs.
But just as I said about this time last month – right before the S&P dropped a fast 25 points – investors will probably have a better chance to buy stocks in the days ahead. And aggressive traders might have a good chance right here to try to profit on a quick downside move.
Best regards and good trading,
In today’s mailbag, a reader weighs in on Jeff’s latest speculative opportunity…
While I thought you were way too early in your previous precious metal stock recommendation – primarily because of the Commitment of Traders (COT) reports – your current recommendation this time coincides with an astonishingly massive reduction in the commercial short positions for both gold and silver as of Friday’s 12/8/17 COT report (now only 232 million ounces of silver and 19 million ounces for gold).
Since this report only reflects the activity through Tuesday 12/5/17, it is possible that the extreme price swings since last Tuesday may have enabled the commercials to dramatically reduce those short positions even further. Your seasonal observations combined with your technical indicators make the FOMC meeting a fascinating point to speculate on.
With the 0.25% increase virtually unanimously expected by the investment community, you may have nailed the catalyst head-on. I’m speculating with you on this one!
– Mark H.
As always, feel free to send in your stories, questions, or suggestions right here…