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Time or Price...What's It Gonna Be? - Morning Market Squeeze

Key Takeaways:

- I remain intensely focused on the dollar here, since a 5-wave decline from 11/02 appears to be nearing its end in the area of DXY ..., with slowing downside momentum.


- S&P futures are higher and the VIX is lower this morning. However, after diverging positively against the S&P 500’s higher highs during the 1st few days of December, the VIX is now in a short-term uptrend while the S&P 500 is now in a short-term downtrend. THE level to watch is ... on the VIX, as a close above here would signal that higher volatility has become sustainable over the near-term.


- So far, buyers are stepping in to buy oil’s intra-day dips at the short-term trailing stop of .... For USO, this means measured potential to ... is still the focus.


- This letter added a long in ... at 16.41 on Monday. This trade carries an initial stop of 14.61 and is looking at an initial target of 20.50. We are officially updating premium members regarding trade management and key market developments on a regular intra-day basis via our private Twitter account @XtractPremium. Premium members who submit a follow request will be granted access.


Some Quick Thoughts:

Price and time. These are the only two manners in which corrections develop in financial markets. Contrarian traders live for corrections in price, where perfectly timed placement of countertrend positions are quickly rewarded with deep mean reversion in their favor. Although the S&P 500 has closed lower over the past 4 sessions, the 1.4% drawdown so far has the makings of one of those dreadfully boring time-based corrections that non-theta-oriented contrarian traders have come to hate.


During the mid-November time period, I spoke of the strong breadth that accompanied the S&P 500 to recent all time highs. While it has always been my view that this portends good things for stocks in 2021, admittedly the contrarian in me was simply looking for another correction in price to cleanse the system for new buyers during the late November timeframe. Fast forward to today, if the S&P 500 continues to avoid falling below ... during this recent pullback, a deeper correction will have been averted, meaning the system will have been cleansed via time (not price).


While both SPY and SPX fell far enough from their intra-day highs on Monday to trigger short-term volatility-based stops, forcing them to enter neutral-to-bearish short-term trends, credit spreads, longer-dated Treasury yields and aussie/yen are not showing the kinds of cracks that would typically lead to a major price top at this time. Therefore, until SPY reclaims its short-term bull trend with a close > ..., initial risk is simply seen as being down to the ... area.


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