Traders' A.I.

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Day 6: The Main Story Driving The US Equity Markets this Morning – Geopolitical Events and Currency Markets!

In our forecast for yesterday, Thursday, we wrote: “The only thing that can thwart this journey to another all-time high is potential geopolitical news which may prove highly negative for the markets. Barring any such developments, the next stop for this move appears to be 2873+ in a week or two” (click here to read the full report/verify this claim). And, as Murphy’s law would mandate it, exactly such an issue has shown up on the horizon!

The overnight e-mini futures are down this morning in the wake of Turkey’s currency crash and the resulting chaos in the foreign exchange markets! IF the fallout is not contained quickly, it has the potential to spiral into a contagion spreading to the Euro banks, then to the Euro, and then to the global markets over the weekend. 

How well and how fast this crisis is contained (fully or limited to just Turkey) is going to be the main factor that would determine the probability of the record highs being taken out by the S&P in the immediate term. 

Another potential concern for the bulls would be that the earnings season is drawing to a close. With no earnings momentum to push the markets higher, and with potential for more geopolitical fall outs, the journey to record highs for the S&P 500 Index might be coming under pressure. 

However, do NOT write it off and do NOT short the index unless key support levels are broken down. 

Model Biases/Outlook:

The market has been within striking distance from the all-time highs recorded in January this year – for the last six days and yet it is not able to crack the strong resistance levels to get there! Last couple of days’ market action – where the S&P 500 Index essentially closed flat – is interpreted by our models just as an inevitable consolidation rather than any slowing of the bullish momentum or any concern for the upward momentum, yet.   

Our models are still sporting a bullish bias, albeit with some caution. If the index closes above 2852 today (to end the trading week), then the index is indicated to move to take out the January high of 2872.87. Barring any negative geopolitical developments, there is no bears in sight, all the way to below 2820.

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. We are in this “neither bullish, nor bearish” state until Tue 08/07.

Eight days after the “neutral/indeterminate” bias, our models have resumed the bullish bias as of Tue 08/07. We continue this bullish bias for the fourth day today, Fri 08/10, but raise some caution about the bulls losing steam in the wake of geopolitical headlines and the stream of positive earnings drying up due to the end of the earnings season.  

Trading Plans for FRI, 08/10:

Medium-term/long-term Investors

Medium term models indicate a bullish state for the S&P 500 Index. The models are currently flat (no positions) and are waiting for a break out to go long. 

For Friday’s regular session, the medium term models indicate going long on a break above the index level of 2865, with a 10-point trailing stop. No bearish bias until all the way below 2825. 

Remember that a “trailing stop” works differently from the traditional stop-loss order. Please bear in mind that the trailing stop’s trigger level would keep changing throughout the session (click here to read on the conceptual workings of a trailing-stop). 

Aggressive, Short-term, Intraday, or Professional Traders