Todd Harrison: Keep in Mind the Bull Case for the S&P 500
An inverse head-and-shoulders formation projects to 1968 on the S&P 500.
The tale of two tapes continues with a distinct "Ss over Ns" flavor (the S&P 500's (INDEXSP:.INX) outperformance of the NASDAQ 100 (INDEXNASDAQ:NDX)). That bifurcation is evident in the price action of financial stocks, which held the all-important KBW Bank Index (INDEXSP:BKX) 76 level, versus the downward action in high-beta tech (throw a dart because they're all under selling pressures). There has been incessant, yet unconfirmed, chatter that some tech funds are in trouble, which may be the cause of liquidation in some of these names. Personally, I don't like invisible catalysts, so take that with a grain of salt.
The bull case for the S&P -- and yes, there is one -- is illuminated in the chart below, which is a reverse head-and-shoulders formation.
Click to enlarge
IF (again, this is a big if) the S&P can push higher through S&P 1895 to 1900, it works (through a pure technical lens) to S&P 1968. I'm currently in possession of a handful of SPDR S&P 500 ETF Trust (NYSEARCA:SPY) put options, so I'll stop myself out if that 1968 level is breached. Remember that I'm playing smaller in front of what I perceive to be an uptick in volatility.
One thing to keep in mind is that the market has seen some risk-off into the weekends of late given the geopolitical tensions in the Ukraine. It's only Wednesday, of course, but it's not too early to consider that possibility. There's a natural inclination to believe that Russia is Greece is Cyprus (read: it won't matter), but past performance is no guarantee of future results. Given the interconnectedness of the global financial machine, the compressed levels of volatility, and that pesky Bloomberg SMART Money Index, we'd be wise to see both sides.
As always, I hope this finds you well.
Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at email@example.com.
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