We had very positive price action today. The S&P 500 held the 1285 level, which was very impressive off the back of yesterday’s gains. The longer we hold this range, above 1237, the more support we will build. Ultimately, this support will be gained by excitement for a year-end rally. However, that does not mean we would recommend holding onto our longs at this juncture. Last Sunday, we pinpointed our 1275 price level (1 to 3 weeks) with a high probability of reaching 1300 in the short term. As all of our readers know by now, we put out a buy call on the S&P 500 on Sunday, October 2nd at 1090. The preceding Monday we hit a intraday low of 1090, to close above 1100. For our FREE S&P 500 New Letter visit: www.thechartlab.com
Okay, so enough grand standing. Do we anticipate a test to 1328 with this current trend up? Yes. Read our last article. As we have pointed out in our last three articles, we are in the excitement/relief stage. Shorts are still apprehensively covering short positions and long only managers fear missing the next 4% to the upside. This momentum is in tact for the next coule weeks.
As individual investors, you have an advantage: you can sit on your hands and wait. You are not being forced to allocate your capital as many long only managers are required to do so. You are not a hedge fund manager that has to worry about investors redeeming because you are not performing. These are two very big psychological hurdles institutional investors deal with.
We are telling our members to reduce risk at 1305. Ideally, this doesn't mean we will sit back, we continually look to execute pair trades around our long positions. The upside to 1328 or 3% from 1285 is not worth the risk reward. Our objective is to be patient and to wait for a retirement to the 1238 level and get long for a year-end rally for 1360.
What stocks and sectors do you get long or short going into year end?
The Chart below shows the sectors that have out performed for today, Friday the 28th: 1 week, 1 month period. This is not a text book sector rotation. This was due to sectors that were mostly sold off do to EU banking contagion and a slowdown in Global Growth. This move was certainly a reversion to the mean. If you pair trade or trade via sector ETF's, getting a good grasp of why securities are overbought/underbought is critical.
For those of you who don't buy ETF's, you can capture enough beta with the top ten S&P holdings on a pull pack (see names below). BE PATIENT, NOT EARLY. For our FREE S&P 500 New Letter visit: www.thechartlab.com
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