S&P 500 – What’s a Trader to Do Up Here?

What’s inside:

• S&P 500 suspended in recorded territory making for tough trading environment
• Tough to buy, tougher to short; scenarios outlined for both sides
• Technical levels and lines in consideration for navigating current conditions

Find out in our Q3 Forecast what risks the stock market faces in the months ahead.

In the weekly forecast, we described the market as, “Suspended in air between record highs at the November slope line and the March top-side trend-line.” For the week, so far, that remains the case. What is a trader to do when volatility is stuck in the single digits (VIX currently at 9.35) and the market grinds its way to new record closes? Well, as an investor you are happy, but for those looking to catch trades – not so much.

First off, despite everything appearing to be ‘A-OK’, it’s no time to become complacent, but it’s also not a great time to be a hero and try and find a top. The grind can continue to chew up the shorts for an extended period of time while only benefiting longs one handle at a time. It can also result in a quick down-draft which amounts to a shake-out, resulting in an opportunity for dip-buyers to step in at better prices, or it could kick off a meaningful correction. The fact this price action comes amid a summer trading environment makes the current situation that much harder.

Again, what is a trader to do? For those sitting on existing longs from lower levels, having one eye on the exit (trailing stop) is a prudent approach. For those waiting to enter the market long it may be a good idea to see if we can get a shake-out first before establishing new long positions. A small down-move will not only alleviate short-term overbought conditions but also provide better risk/reward entries. One spot to look to is a retest of the June high at 2453, and should that fail then the lower parallel running up from the May low would be another point of interest. If you’re thinking the market is a short, you might be right, but until we see a spike-high indicating exhaustion or a decline and failed rally it’s a difficult proposition.

S&P 500: Daily

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---Written by Paul Robinson, Market Analyst

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