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80 Handles of S&P Pain in 10 Sessions: How Will the Bulls React?


Traders posture into tomorrow's employment report.

Editor's Note: Todd posts his vibes in real time each day on our Buzz & Banter.

We've laid out the case for a decline to S&P (INDEXSP:.INX) 1600-ish, most recently here and here.

Yesterday, following a 10-session 80-handle decline in the S&P, we more or less got there, with a low tick of 1607 and change (vs. S&P 1687 and change on May 22). We earmarked that level for several reasons, and it played out in spades; the more difficult discussion is, where do we go from here, and when?

An early bounce attempt is intuitive, as is the anticipated probe lower, following yesterday's outsized move to the downside. We will monitor the tenor of the tape during these moves and watch for the road signs that will help shape the next leg.

Can the bulls wrestle back control, using the 50-day (1604) and the broader interpretation of the trend-line since November (1600) as an excuse to get their groove on? If so, they'll need to bust a move through the down-trend line (in and around S&P 1640) to scare the bears who believe they've only just begun to fight.

Remember, they took it in the teeth day after day after day this year; in fact, if the Dow Jones Industrial Average (INDEXDJX:.DJI) finishes in the green today, the unbelievable streak of sessions without three consecutive down days-the longest streak since the turn of the last century-will continue to continue.

For my part, as shared in real-time on the Buzz & Banter (click here for a free two-week trial), I punted all but a paltry 25% of my S&P September put position-I had my chance under S&P 1610 late yesterday, but I let it ride as I made a lot of put sales (read: I covered the meat of my negative bet into the deep decline).

Should the market bounce hard, I'll begin to build my December SPY (NYSEARCA:SPY) put position with a stop on the other side of S&P 1640; if we reverse lower, which wouldn't shock me, I'll peel out of my remaining September paper as a function of discipline.

I have a few tertiary positions-I don't write about every stock I'm involved with; I have my reasons-which is one of the reasons I kept a little downside exposure on, but it's small potatoes as these things go. The market hit our target and will now decide whether to make Mother Morgan (NYSE:MS) look smart, with a move to S&P 1500, or reward the dip buyers who, despite 80 handles of pain, still seem to be in a fair amount of denial.

In full disclosure, we have our twins' recorder recital this morning at 9:15 a.m. EDT right down the road, and I'm told kids remember things like this, so I'll be there rooting them on, with every intention of being back at my turret-and the Buzz & Banter-by 10:30 a.m. Ya think I'll miss anything? Yeah, me too!

Random Thoughts:
  • There are two sides to the current ride; the bulls will argue that the government can effectively swallow hard and write off the toxic debt they've ingested while the bears will lay claim to the business cycle, knowing in their deepest innards that what goes around, comes around regardless of what the market has been brainwashed to believe.
  • Banks, breadth, leadership and commodities remain viable tells, and levels include S&P 1600 on the downside and S&P 1640 on the upside.
  • We've got a monster economic report tomorrow-on a summer Friday, no less-which will start tongues wagging on whether the Fed will taper, and when. Expect to see posturing, particularly this afternoon.
  • The bulls will offer that bad data on Friday will equal more QE; the bears will argue that QE, or the hopes thereof, is the only thing holding up the tape-and follow with, "Hope isn't a viable investment vehicle."
  • Goldman (NYSE:GS), JPMorgan (NYSE:JPM), and Deutsche Bank (NYSE:DB) remain my go-to proxies in the financial realm; as go the piggies so goes the poke.
  • Good traders know how to make money; great traders know how to take a loss, and of course, opportunities are made up easier than losses.
  • Hit 'em hard, and remember that profitability resides in the ride ahead.

Twitter: @todd_harrison

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