Who’s Going To Be The Mouse – the Bull or the Bear?
Our medium-term models’ forecast for the S&P 500 Index for Thursday stated: “For Thursday, the medium term models indicate a broad range of 2835-2795 band as the pivot for any trades” (click here to read/verify this claim).
The index reached a low of 2796.34 – just about a single point away from the lower bound of the range but failed to crack it and then reversed. Those who followed our models and waited for a break below 2795 would have saved themselves from getting into a losing short trade and from getting stuck in a bear-trap. Similarly, the index failed to break out above the upper bound as well, with the index registering a high of 2829.91.
The action of the market yesterday, Thursday, indicates formation of potential trap for the bulls or the bears before the market breaks out in either direction. With the Non-Farm Payrolls data out this morning, and the expected volatility to follow, it would be prudent to wait for any clear breakout before engaging in trading in either direction.
Opening trades within the range in a knee-jerk reaction to market swings could get one trapped in a bad trade that could swiftly move in the opposite direction.
Model Biases/Outlook:
Our models continue to indicate the S&P 500 Index as being stuck in an “indeterminate” state, with no clear bias in either direction, while within the broader 2840-2795 range for Friday.
If the index convincingly breaks out of this range, then the index is indicated to move in the direction of the breakout for the rest of the day. A daily close above 2840 is needed for any bullish action to continue into the next week. A daily close below 2800 is needed for any bearish action to continue into the next week.
A Brief Trace Back of The Current Bias/Outlook
After 14 consecutive days of bearish bias, our models have negated the bearish bias on last Friday, 07/06/18 when it closed at 2759.82! Since then, our models have been consistently forecasting bullish strength and are yet to flash any concerns about any bears in sight, until Friday, 07/27.
After reiterating the bullish momentum for 21 consecutive days, our models now abandoned the bullish bias with the action on last Friday 07/27, but have NOT replaced it with bearish bias yet.
Trading Plans for FRI, 08/03:
Medium-term/long-term Investors
Medium term models indicate an “indeterminate” state for the S&P 500 Index and are currently not biased in either direction but indicate a choppy, range-bound trading.
For Friday, the medium term models indicate NOT opening of any new trades. The models indicate waiting to see the close on Friday before determining any next trading opportunity.
Aggressive, Short-term, Intraday, or Professional Traders
For Friday, aggressive intraday models indicate using the 2840-2810 as the pivot band to place trades off of (the range is widened to tune out potential noise that is likely to surround the NFP release Friday morning).
Above 2840, models would go long with tight trailing stop (about 6 points) and below 2810, models would go short with a tight trailing stop (about 6 points). To avoid getting caught up in whipsaws and overtrading, wait for a confirmation of the breakout off these levels on at least a 1/5/15 minute bar, depending on your trading style and risk profile.
(click here to read on the conceptual workings of a trailing-stop)
IMPORTANT RISK DISCLOSURES AND NOTICES – READ CAREFULLY:
(i) This article contains personal opinions of the author and is NOT representative of any organization(s) he may be affiliated with. This article is solely intended for informational and educational purposes only. It is NOT any specific advice or recommendation or solicitation to purchase or sell or cause any transaction in any specific investment instruments at any specific price levels, but it is a generic analysis of the instruments mentioned.
(ii) Do NOT make your financial investment or trading decisions based on this article; anyone doing so shall do so solely at their own risk. The author will NOT be responsible for any losses or loss of potential gains arising from any investments/trades made based on the opinions, forecasts or other information contained in this article.
(iii) Risk Warning: Investing, trading in S&P 500 Index – spot, futures, or options or in any other synthetic form – or its component stocks carries inherent risk of loss. Trading in leveraged instruments such as futures carries much higher risk of significant losses and you may lose more than you invested in them. Carefully consider your individual financial situation and investment objectives before investing in any financial instruments. If you are not a professional trader, consult a professional investment advisor before making your investment decisions.
(iv) Past performance: This article may contain references to past performance of hypothetical trades or past forecasts, which should NOT be taken as any representation or promise or guarantee of potential future profits. Past performance is not indicative of future performance.
(v) The author makes no representations whatsoever and assumes no responsibility as to the suitability, accuracy, completeness or validity of the information or the forecasts provided.
(vi) All opinions expressed herein are subject to change at any time, without any notice to anyone.