Traders' A.I.

The market action today has been almost the flipped version of it from yesterday (especially so if you consider the e-mini futures market as well). The apparently stalled S&P 500 Index that was confied to a directionless channel of about 40 points wide for more than two weeks has finally broken below that channel, confirming a weak bull, just yesterday! And, yet…today, the index is back into that channel confirming that the bears are too weak to mount a sustained attack on the bulls.

Model Biases/Outlook:

Having risen back above the strong support band of 2710-2700 and breaking through even above our often-repeated, key 2715 level, today’s market action is interpreted by our aggressive, short-term models as confirming that yesterday’s bearish move is now negated and that the market has fallen back into the bulls’ territory.  

Anyone feeling tempted to short sell the market has to note that the market has NOT entered the bears’ territory, even with yesterday’s bearish action following Italy’s political turmoil. As mentioned in our intraday alert last week on 5/22, “2680 has to be broken for the models to turn bearish”. That forecast published eight days back still holds true for the medium term models. 

Today’s action – while significant in negating the bearish bias and bringing the index out of the proximity of bears’ territory – brings us back into the “still in bulls’ territory” range of our medium term models – as if yesterday never happened!

Those who followed our medium term models would have had bought the market and having a profitable day today. Medium term models bought above 2715 and are currently long. The models have a stop order to sell the long at exactly 2715, and indicate taking profit on another test of the 2730-35 band.

Medium term models indicate no short bias until at least a daily close below 2700 (slightly bearish) or below 2675 (outright bearish). In either case, they indicate staying flat within the 2715-2700 band. 

Those who followed our aggressive, short term models would have had another decently profitable day today, by buying the market on a break above 2705. The models exited the intraday longs and booked decent profits on the failure around the our often mentioned 2730-35 region (the index registered a high of 2729.34, just under one point from entering the region). Those who are still holding the longs may consider a tight trailing stop of about 5-10 points.

Short term models indicate a cautiously bullish bias. Bulls have to push the index into the 2730-35 region and clear above 2740 to keep the bullish move going, failing which would weaken the bulls again. Until then, it would be a choppy trading region with both bulls and bears causing whipsaws.

Aggressive, intraday models indicate trading from the long side while above 2725 and from the short side while below 2715 with tight stops (as small as 5 to 10 points). Stay flat between 2725 and 2715 (if not already long from this morning).