August 24, 2017

Short-term bearish bias

A sharp decline occurred immediately following the  the surprisingly poor housing news (new home sales fell 3.9%) from the Commerce Department at 10:000 EST. However, the steep decline was recovered by the end of the trading day. As a result, the market is still within the range that established towards the end of last week. Furthermore, the S&P remains in an overbought state.

My sentiment over the short-term (1-5 days) continues to be bearish. I stated at the end of last week that “this type of price action (substantial advance followed by tight range-bound price action) typically leads to a short-term reprieve, particularly  when the market is in an overbought state. Furthermore, the longer the indices remain in a tight range the shaper the move outside of the range and given that the upside looks limited due to the overbought levels I expect to see a short-term move lower towards the beginning of next week. Not much has changed over the last few days.

Also, as I have stated the last few days (and several times in the past) the initial move following a fed release is usually reversed within a few days particularly if the move was greater than 0.5% in the S&P. When I combine all of the elements mentioned above I can’t help but have a short-term bearish bias.”

Was today’s bounce fueled by end of the quarter window-dressing? We have certainly seen this type of move before. This could be my skeptical side temporarily taking over my mindset because I was so enthused by the early drop. Why you ask? The early decline brought our current SPX Short Iron Condor position closer to the middle of our chosen range.

Overbought/Oversold levels for March 26, 2007

  • SPY – 74.1 (overbought)
  • DIA – 69.2 (neutral)
  • IWM – 67.7 (neutral)
  • QQQQ – 70.9 (overbought)
  • OIH – 82.4 (very overbought)
  • GLD – 66.8 (neutral)

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