S&P 500 (SPX) Pricing Model and Forecast November 2017
November 16, 2017
The S&P 500 made all time highs on November 7th 2017 reaching a high of 2597.02, just shy of our 2600 prediction posted on the Day Traders Group Client live stream. The failure to reach the Point and Figure target of 2600 along with the Doji printed on November 7, 2017 preceded what has now been seven straight days of declines having gone from 2597.02 down to a low of 2557.45 as of Nov 15, 2017 on above average volume signifying distribution by insitutional investors.
The internal dispersion in the bond market coupled with significant new lows out-weighing the new highs during the last few trading sessions is signaling that this rotation is possibly signifying a deterioration in market internals as well as advance/decline metrics confirming unfavorable metrics going forward even as the S&P 500 enters one of the best months of the year historically.
The combination of this ongoing dispersion with increasing divergence in prices vs market internals signifies also that risk aversion is the dominant emotion that investors are battling. This type of price action is indicative of what we experienced in late 2007 as well, we all know what happened next.
That said, it is worth noting that the recent price action could also be preceding a "re-setting" of the market internals setting up more favorable conditions for a rally to new highs as well, we will just have to process the data as it comes in however a few more days of distribution combined with an over-valued market on many metrics, overbought conditions along with the fact that many of the new investors that have come into the market in the last 8 years have been conditioned to "buy the dip" evident in the price action we have been witnessing during the last 7 days with the "buy the dip crowd" already beginning to lose confidence that the PPT will save them as evidence from the markets inablity to bounce back as in previous sessions.
The stocks advancing Yesterday as not so bad coming in at 1046 advancing while stocks declining was 1910 and while I won't bore you with all the details, this is becoming a trend. What is somewhat unsettling also is that these sell-offs are on heavy volume indicative of "smart-money" taking profits, such as world class hedge funds, large money managers, pensions funds and other institutional traders as they unwind significant holdings during what is normally a "bullish" time of year.
Noteworthy is the complacency that has taken hold of the market with the longest period of time without even a blip regarding even a tiny correction,I haven't seen this in decades if ever. What I do know is that low volatility often precedes high volatility so it would be prudent to be cautious going forward as the larger traders and insitutions unwind their holdings.
Our clients are mitigating the downside risk with stock options that are allocated in a way to profit from these downward moves that are now taking place such as the 89% gain yesterday in the S&P 500 decline off-setting and even profiting from the decline while our clients also booked 105% in gains on TSLA during it's most recent struggle with its 250 day moving average and many others. If your not in a trading group that is experienced in high volatility than you should get involved in one to mitigate losses in your portfolio and even profit from the forthcoming asset rotation. I suggest getting in with a group that shares real time options trades as they happen with set-ups targets and strategies posted pre-market for investors with large holdings such as with Day Traders Group that not only day trades but positions in swing trade strategies designed to profit from a market that goes either up or down, the more volatile the better.
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Getting back to the market, Opex is approaching and should the yield curve keep collapsing Investors should not only hedge their portfolios but position themselves to profit from the un-winding of these insitutional holdings that have been going on under the surface, these type of strategies should only be attempted by veteran traders or at least have one by your side....it is worth mentioning that the 5s 30s yield curve hasn't been this flat since just before the 2008 sell off, So at this point caution is warranted yet I remain cautiously optimistic believe it or not but I wouldn't be doing my job if I didn't bring to your attention what could actually go wrong with this historic bull market.
The long-term trend obviously favors the bulls, however in the short-term the SPX has formed a head and shoulders pattern that has now closed below the "neck-line". With Options expiration being this Friday investors should look for wild price swings and at at least be aware that some key levels could be tested in the short-term. For instance the 50 MA around 2544-2540 would be a reasonable expectation now that the S&P 500 is this close combined with unfavorable market interrnals and which would also coincide with the 50% Fibonacci. Should breadth continue to collaps a test of the 61.8% Fibonacci around 2532 certainly can't be ruled out and would perhaps set up a nice "re-set" for a Christmas rally should those levels come to fruition before year end. As always we will keep an open mind and adjust our positions accordingly as the market action unfolds
