Key Tactical Takeaways:
> After 2 straight failed attempts to rally above our bearish NT Trailing Stop at SPX 3427, the recent equity market rebound is morphing into a "bearish flag" consolidation across several major indices.
> While the VIX confirmed a breakdown in the short-term trend of rising volatility below 30.3 on Wednesday, 27.10 is now the supportive line in the sand that keeps the near-term trend favoring higher VIX levels.
> Although gold is holding in well as the US$ undergoes a tactical transition from down to sideways/up, the clock is ticking on the yellow metal’s still healthy sideways consolidation (see page 5 for more details).
> We added 2 more short ideas to the trade ideas list: ZION and IWM. If QQQ shows SUSTAINED intra-day weakness below 269.66 in the next day or so, that could produce a very swift and aggressive decline worthy of leveraged long puts.
Some Quick Thoughts:
Currently, there are so many factors at play in the market, many of them negative. So, when we consider that one of the only positive factors, assets held by most of the Fed's nine emergency pandemic loan programs, have been shrinking, it makes sense that the recent surge in valuations needs to decelerate/mean revert. Unfortunately for recently complacent retail investors, mean reversion can often happen swiftly and without mercy.
Late last week, we began discussing our plans to start looking for opportunities to get short the market after an anticipated short-term rebound. Admittedly, we were hoping for a more sizable retrace of last week's sharp decline before doing so. But, with big tech, specifically QQQ, now "flagging" bearishly after struggling in recent days to rally back into the 5-month bull channel that it breached on Monday, it appears the gamma reversal-related negative feedback loop may need to take the form of a more immediate retail shakeout. Keep a close eye on SPY332.88 and QQQ 269.66, as any sustained intra-day selling below these levels in the coming days would confirm a breakdown and unleash another merciless leg lower.
The Shanghai Composite ended +0.79%, but still below its bearish ST and NT stops. The Nikkei jumped 0.74%, and is close to testing its post-crisis highs. The DAX is -0.04%, just below its post-crisis highs.
This is an abridged version of our premium content. If you'd like to have content like this sent to your inbox each morning, please click here to sign up for a risk-free, 2-week trial (no credit card required).
Please follow us on Twitter @xtractanalytics