On Friday in the "Market Monitor" on OptionInvestor.com, I thought the SPDRS (AMEX:SPY) were looking attractive for a near- term bearish trade. I didn't think traders should have been looking for a "home run" in the trade, but did think the S&P 500 (SPX.X) did have some downside with the action we were seeing in the bond market. At that time, the SPY were trading $114.10 and current trading is $113.75. But lets take a quick look at the S&P 500 (SPX.X) here to see how the trade may also be monitored and how subscribers may want to "imagine" a potential outcome of a simple profit taking continuation that I think we're in right now.
S&P 500 Index Chart -
Current near-term support on the S&P 500 Index (SPX.X) looks to be coming in right at our 50% retracement bracket near 1,126. In the past 5 sessions, this $1,126 level has held as support. Several weeks ago, I felt the $1,082 level was a "key" PIVOT point for the SPX and I now draw upon that observation of several seeks ago to begin formulating a potential area of support on any pullback.
The recent action in the bond market and lower YIELDS found there based on the buying in bonds, perhaps plays into the notion that the SPX may have some downside near term. Current technicals in the SPX show a rising 50-day MA at $1,096, which in a day or two might be very close to a "psychological" level of 1,000 where a pullback might find some near-term support.
Subscribers will also note the "rolling" MACD indicator. It has now crossed over and rolling toward the zero level. The decline is gradual and certainly has the potential to "round out" near the zero level in coming sessions should we see further weakness in the S&P 500. That type of trading might then be a level where an equity bear locks in some gains, especially if that 5-year YIELD begins to firm at the previously stated 3.918% level.
Last couple hours of trading
In the past two hours of trading, stocks have firmed off their pullback as bond YIELDS slow inch lower. The 5-year YIELD is just inching to a session low of 3.956%, where "inching" is the operative word.
Sector weakness is hard to find today. At one point during the trading session, the Gold/Silver (XAU.X) index lead sector losers, but even it has battled back to only trade down 0.58% at $53.07. A move above the $55 level in this index could put equity bulls back in the money. I think any "divergence" in gold/silver stock prices from that of lower YIELD must be monitored. We've seen in past history that this index moving higher with a lower bond YIELD can sometimes give hint that the movement in bonds is more short-term and just positioning among traders there.
Another group to keep an eye on as it pertains to longer-term economic strength is the energy sectors like the Oil Index (OIX.X), Natural Gas (XNG.X) and Oil Service (OSX.X). These groups will often times move ahead of the commodity itself and the MARKET begins to factor in the present and future catalysts of economic growth.
One stock in the Oil Service Index (OSX.X) that is looking bullish are shares of BJ Services (NYSE:BJS). What got me looking at the stocks was analysis from a CNBC guest that the stock was "breaking out." Keep an eye on this one above the $29 level. Currently, the point/figure chart shows bearish resistance trend at $29, so it would take a trade at $30 to have the stock breaking above this longer-term bearish trend. I have 50% retracement at $29 (retracement from $43.10 to $14.87). I like the correlation of resistance at $29, if broken to the upside has the longer-term looking bullish. Retracement at 61.8% would be at the $32.31 level and that would be my near-term trader's target. Support should be firming near the 38.2% retracement level of $25.65.
Relative strength for BJS is strong vs. the OSX.X and very close to giving another RS "buy signal" vs. the SPX. This stock would rank "high" for bulls looking for some early exposure to the Oil Service Index.