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Day 4 of Geopolitical Events and Currency Markets? Don’t Jump the Gun…Especially if Shorting!

In our forecast for Friday, 08/10, we wrote regarding the Turkey’s currency crisis: “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.” (click here to read the full report/verify this claim). 

The action in the overnight e-mini futures followed the continuation of the crash of Turkey’s Lira to new record lows Sunday night. While there is always a scope for this crisis to spread to other areas in the markets, our models are currently interpreting the action thus far is “not panicky”. The various “risk-off” measures are NOT indicating “panic” in the markets. 

While it remains to be seen as to how the regular hours session of the US Equity Markets pans out today (Monday), the action thus far warrants caution for the bears – do not engage in knee-jerk short selling as such trades might get stuck in a bear-trap.

In the wake of the financial media headlines which might have one believe that the market is or might be tanking, we feel the need to reiterate this, from our caution issued on Friday: “However, do NOT write it off and do NOT short the index unless key support levels are broken down.” (click here to read the full report/verify this claim).

Read below for the key levels our models are watching to base any trades off of.  

Model Biases/Outlook:

The market has been within striking distance from the all-time highs recorded in January this year – for the last eight 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.   

Barring any negative geopolitical developments, there is no bears in sight, all the way to below 2820. The Turkish Lira’s crisis has so far failed to pierce this 2820 level (the overnight futures market registered a low of 2820.50 on the e-mini futures!). Our models are still sporting a bullish bias, albeit with some caution. A daily close above 2860 is needed for the recent bullishness to continue. Between 2820 and 2860, it is going to be another choppy trading range.

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 sixth day today, Mon 08/13, but raise some caution about the bulls losing steam in the wake of geopolitical headlines and the drying up of positive earnings stream due to the end of the earnings season.  

Trading Plans for MON, 08/13:

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 Monday’s regular session, the medium term models indicate going long on a break above the index level of 2860, with a 10-point trailing stop. No bearish bias until all the way below 2820. 

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