Given the severe beating short sellers have endured in recent weeks, I sincerely doubt any of them felt particularly relieved by Tuesday's bearish reversal. That said, seeing the market rebound on Wednesday and retrace the bulk of Tuesday's sell-off was simply another rusty nail being driven into a quickly closing coffin.
It really doesn't matter what you attribute the market's unrelenting bid to. The bottom line is that being short the indices for any length of time has been a generally poor trading plan. At some point the market will not only bend, but also break. That point, however, is not now. For the time being, short-term participants should consider measuring the market's strength by its ability to remain above a 13-day or 21-day exponential moving average. More intermediate and longer-term folks should remain focused on the 50-day simple moving average.
Looking ahead to Thursday's Es auction, the session is likely to hinge on which side of 1951.50 the contract is trading. All trading above that level encourages day timeframe traders to auction prices up toward new life-of-contract highs. All trading beneath that level keeps us in a rotational environment, with downside support coming in near 1945.75 and 1942.50.
As far as a line in the sand is concerned, my baseline expectation is for generally higher (near-term) prices, as long as the Es continues to close above 1942.50 (roughly $194.75 on SPY).
- Despite the never-ending recall notices, General Motors (GM) managed to close Wednesday's session at a new swing high. Assuming the stock doesn't reverse course and close beneath $36, I believe realistic upside targets are now $37.75 and $39.80. I've not resold any calls against this equity position in recent days, though I did cut the position in half on Tuesday.
- It has been a generally bullish market environment, but Baxter (BAX) continues to plod along at a glacial pace. Using an uptrend line from the June 4 lows, and a downtrend line from the June 6 highs, my current plan is to trade in the direction of the trend line break. Should BAX close above $74.20, I will remain long (and potentially up-size the position). If, however, the stock should close beneath $73 -- $73.30, I will likely cut the position altogether. The bottom line is that now is the time for the bulls to either put up or shut up.
- I continue to have my eye on the 30-Year Treasury Yield and iShares 20+Year Treasury Bond ETF (TLT). My areas of interest are still 3.5% on the 30-Year T-Bond, and roughly $110.80 on the TLT. As discussed in past Trader Dailies, we do not want to blindly guess when rates will turn higher. Wait for the turn and trade with the market, rather than against it.
Any trading or volume profile related questions can be posted in the comments section below, emailed to me at firstname.lastname@example.org or posted to my twitter feed @ByrneRWS