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U.S. Business Cycle Stuck in Trough

A S&P 500 close below 1325 on Wednesday draws in a potential test of 1315. A weekly close below 1315 draws in a monthly chart test of 1275 potentially. The fly in the ointment, and the unknown variable in all of this, is how far the Federal Reserve Bank of New York will go in ramping low-volume exchange valuations in an effort to prove that quantitative easing is working (cough, cough).

The signal to sell SPDR S&P 500 (SPY) (133.50), the exchange traded fund (ETF) that tracks S&P500 momentum, followed through with a break of 134.20 that targeted 134.00, and 133.20, and has now completed its course. Traders who missed the signals need to take care at these levels, and wait for the overnight Asian and European sessions to reveal the strength of momentum in the initial moves to sell global equity risk.

There is very little support if 131.00 breaks on SPY, which will draw in targets of 129.50 and 127.50 if momentum builds in global equity selling. However, ahead of the non-farm payroll release on Friday from the U.S., caution needs to be taken at these levels. Congratulations to those who caught the first moves, those positions should be closed or tightened up, and taken again if overnight momentum builds.

Breaks above 1340 on S&P 500 and above 134.00 on SPY, which have been highlighted as major resistance areas, still look to be important price points of note that now look a long way off. Clients were warned not to trust the late session moves on Tuesday night as Wall Street closed, as market momentum and sentiment reads were very disjointed.

ETF Update

The main U.S. ETFs that track technology (XLK) (26.15), energy (XLE) (76.10), semi-conductors (SMH) (35.30), financials (XLF) (15.50), and emerging markets (EEM)(48.00), show little indication that momentum is building, and are back into the previous session ranges after getting caught in the Kentucky Derby-type finish to Wall Street trade on Tuesday. All ETF's will signal short at some stage today, and detail will be sent to clients. Now is not the time to be hanging on to long-equity sector ETF's.
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XLE $65.78 3.02%
XLK $40.85 1.92%
EEM $34.56 2.11%
SPY $198.47 1.78%
SMH $51.22 1.77%


Chart of I:DJI
DOW 16,776.43 +304.06 1.85%
S&P 500 1,987.05 +35.69 1.83%
NASDAQ 4,781.2640 +73.4890 1.56%

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