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Macro Picture From Currencies and Bonds Remains Bearish


My overall message is to "sell the rips" in risk assets for all but the most nimble of traders.

To be clear, I am looking for bullish evidence onto which I can grasp. The reason for that is that more and more talking heads are singing a short-term bearish tune – and I like to zig when others are zagging. But, as you will see in today's article, it's hard to find much to be bullish about right now.

Before I get into the currency and bond markets, let's take a look at the current status of the US equity markets.


S&P e-Mini Futures indicating it may be time for a counter-trend bounce in the very short-term.

So, with this week's volatility, what might we expect as we head into the weekend? The chart of the S&P e-Mini Futures continuous contract (@ES) is shown below on using 10-minute candles. From my perch, it looks like stocks may have finished up a first sub-wave lower (wave "i of c") with this morning's spike lower. There may be a re-test of those lows, but I would expect that either later today or tomorrow morning that we'll see a wave "ii of c" bounce. My best guess as to upside potential for the anticipated bounce is anywhere from 1,553.25 to 1,570.75 on the e-Mini futures. That being noted, our firm got long of SPY and/or SSO for various accounts near the lows this morning and we're planning on taking profits on that position starting at about 1,555 – 1,556. Why take profits? Because we absolutely feel that there is more downside to come, which leads us to the next chart.

Remember my longer-term bearish outlook, though.

The daily chart of the S&P 500 (INDEXSP:.INX) (cash) chart is shown below. This is the same chart that I showed last week. I have not changed my outlook one bit. We should still get more of a pullback for equities – at least enough to bring the S&P down to approximately 1,480. Frankly, I would be surprised if that is all the downside we see, but I put in out there as the first possible downside target for this correction. A 5% drop from here is not that big of a fall, but based on the reaction in the financial news to the volatility we've seen thus far into the correction, one can only imagine the histrionics we might see from the talking heads as we drop to my support levels.

No positions in stocks mentioned.

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