Traders' A.I.

Thursday’s action in S&P 500 is noteworthy since it approached but failed to pierce two important levels – the day’s high at 2779.90 just fell short of taking out our proprietary key level of 2780, and the day’s low at 2760.16 just fell short of taking out our proprietary key level of 2760.

While our models do NOT point this as any indication of bearishness, they do indicate caution about taking new bullish positions. While no major economic releases are due on Friday, the geopolitical event risk is getting elevated. Considering the healthy run bulls had heading into the Friday’s session, it might be prudent to be cautious about initiating fresh buying on the market unless the key levels are broken out of.

Model Biases/Outlook:

Both the medium-term and short-term models indicate strong bullish bias, albeit with some caution to confirm the key levels before initating fresh new buying. As per the medium-term forecast published Wednesday night, “medium-term models now indicate switching to a slight bearish bias if the index falls below 2740 on a daily close basis.”.

Medium term models went long on Wednesday at 2754, as per the trading plan published for Wednesday: “the models indicate staying flat below 2753, and buying within 2753-55 range with tight stops”. Models are sitting on healthy profits and currently have a stop-loss at 2765 on the index.

(Note: The index reached as low as 2760.16 on Thursday but did not touch the day’s stop loss of 2760, so the long positions are still in and decently profitable. Yes, that’s a happy coincidence – again, as regular readers have got used to many such! It’s worth repeating that the models would NOT always work this precisely! Never “bet the farm” based on our forecasts or anyone’s forecasts).

The models indicate no short bias until at least a daily close below 2740 (slightly bearish) or below 2735 (outright bearish). Models indicate staying flat (no positions) between 2760-35. 

Aggressive, intraday models have done very well according to the trading plan for Thursday, trading from the long side above 2765 and never going short as the level of 2750 was never breached! For Friday, the models indicate trading from the long side above 2785 and from the short side below 2760. Use tight stops when buying long or selling short as short term models do NOT want to hold positions into the weekend considering the potential geopolitical risks.