In what has been come a familiar setting for the markets since topping earlier this year, they were unable to hold onto early morning gains. The day started out promising, with oil initially surging more than 1.5% and the VIX falling to its lowest level in more than 2 weeks. The S&P500′s failure to climb above its most recent lower high at 1,334 seemed to serve as a short signal for many traders though, as the markets finished near the lows of the day.
From high to low, oil sold off 4% today, being rejected as it attempted to move above $87, which had been a prior area of support. Gold and silver also took it on the chin today, falling by more than 2.5% and 3%, respectively. What’s more, the reversals in these commodities cannot be attributed to strength in the dollar as it closed flat on the day.
There is a good set up on the market for all players here. Bears can point to the weak price action in key commodities like oil, and the VIX still being elevated as reasons to remain short. They also got another reason today with SPX putting in a lower low relative to its 1,334 and 1,331 highs of last week. Meanwhile bulls can point to the emphatic bounce in the indexes yesterday, as well as increasingly bearish sentiment as reasons to be bullish after a 10% pullback off of the year-to-date high at 1,422.
Basically the scenario is simple, go long close to 1,290-1,300 and go short close to 1,330-1,334 until the next directional move shows its hand. Personally we took today’s advance as opportunity to initiate a short position and we’ll be using today’s high as a stop loss to cover. We do admit though that we’d be more comfortable in our short trade if we didn’t feel that everyone else was doing the same thing.
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