Morning Thoughts May 21

  • US markets continued to trend lower on Friday as investors took risks off the table ahead of the weekend. There were no specific news driving the market. Of the 24 industry groups in the S&P500, only Telecom Services was up on the day driven by strength in AT&T. Despite the ongoing macro concerns, euro strengthened against the dollar while treasuries and the dollar index fell.
  • At this point all three major U.S. equity indices (SPX, NDX, RUT) are extremely oversold and while they can still trade lower (remember…anything is possible) the odds are in favor of a bounce.
  • The Nasdaq 100 (NDX) has now retraced between 61.8% and 50% of the December – April rally.  The index is also coming up on its 200 day moving average and the very important lateral breakout and likely support level near 2430.  I have discussed at multiple occasions this year that the NDX would be healthy to retrace to this breakout level…and here we are.

  • The S&P 500 is also nearing its 200 sma and the 1290 – 1300 lateral breakout level from January…also discussed many times this year as an important potential initial support level.  The index is also at the 61.8% retracement level of the Dec – April rally and at other important Fibonacci support levels if we measure the move from October for example.
  • The SPX has also reached its target near 1295 of the head and shoulders pattern.

  • Also note the extreme oversold levels on RSI and stochastics:

  • Ditto the Russell 2000….big support levels all around;

  • In terms of trading, I am 92% cash, down from 96% cash mid last week.  The only bucket 2 position is a new long position in SPY that I opened near the close on Thursday



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