Smart Traders Short S&P or Moving to Cash

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

By Jason Pilling

NEW YORK ( TheLFB-Forex) -- The S&P 500/Dollar Index inverse-trading relationship is building strength once more. Having taken a sabbatical during the summer months, the correlation is now moving back toward 90% on an intraday near-term basis. Currency traders will undoubtedly be glad to finally see three-month trading channels starting to break down, inline with secondary market trading patterns.

Those traders who have already made the move to global futures contract trading really have distanced themselves from the cash market 9-to-5 daily grind, and have a market that can be accessed virtually 24-hours a day. That advantage will be key to long-term sustainability as the year evolves.

The trade desk Market Updates have been stating for many years that buy-and-hold equity indices strategies are flawed, and that short-term global futures trading is key to longevity. That stance was justified when accredited reports confirmed that the average hold time for stock positions in the whole of 2010 was around eight seconds.
Traders

It would seem that high-frequency trading really has laid out a new trading arena that is not conducive to long-term investing strategies with 2011 following the nauseating roller coaster ride of daily market swings. Most asset classes move more in their daily average trading range than they do on a weekly basis, confirming that the daily churn of high-frequency trading is now virtually impossible to break.

The Client Note calls to get short the S&P 500 or move to cash were issued to clients as trade signals from late July with a break of 1325 on ES (the futures contract for S&P 500). For those who may have missed the initial moves further trade signals were sent during August and September from 1295, 1250, 1190, 1150 and again Monday from 1112, all of which completed their targets.

Targets 1, 2 and 3 were hit on signal S0844 Short S&P Futures, entry at 1112, within five hours of the signal being issued Monday. However, now is the time to look for an oversold bounce higher before the next round of short-equity momentum creates further opportunities.

After two months of pricing in a collapse of 2011 growth outlooks, and the S&P 500 downgrade, near-term chart indications and Market Updates have called for nothing other than equity weakness, or moves from stocks to cash. The mid-term trend is short after a month of sideways crawl that turned into increased selling pressure in-line with U.S. debt issues remaining unresolved.

Now is not the time to be looking for any mid-term equity positions ahead of a volatile period of trade. For those who want to risk stepping in front of the long side of the equity locomotive, the potential is there to bank intraday trades at near-term targets.

For those caught over-exposed to equity positions the trade desk may be able to highlight opportunities as this week unfolds. Global markets will move quickly, as per usual, and clients will likely need to make use of futures contract trading opportunities. Market Updates will be sent to clients as the futures contracts and regional markets move, and will gauge the global correlation levels and strength of potential.

Near-term Global Asset Class Review:
  • Equity/USD Update: S&P500: Support, 1070; Resistance, 1120; Neutral, 1105. Dax: Support, 5180; Resistance, 5460; Neutral, 5350. DXY: Support, 79.30; Resistance, 80.60; Neutral, 79.70
  • Forex Update: EUR: Support, 1.3040; Resistance, 1.3365; Neutral, 1.3275. GBP: Support, 1.5325; Resistance, 1.5580; Neutral, 1.5505. JPY: Support, 76.30; Resistance, 77.05; Neutral, 76.80.
  • Bullion/Oil Update: Gold: Support, 1625; Resistance, 1690; Neutral, 1640. Silver: Support, 29.40; Resistance, 32.15; Neutral, 30.30. Oil: Support, 74.70; Resistance, 81.50; Neutral, 77.65.
  • The great unknown is how the world will view the continued strength of USD reserves held by central banks. It is unlikely that 80.50 resistance on the dollar index will easily break in one go, but probable that it could get tested multiple times in October. The 77.90 area looks to be near-term support.

    The dollar was sent on a wild ride as financial markets imploded in 2008 and the same ride may be ahead as 2011 plays out the same script. The last quarter of 2011 will not be for those with a weak constitution (pun intended), as market correlations will be violently tested.

    The current price points were pivotal for the dollar and stocks in 2009 and 2010, and will be important again now as risk aversion dominates the thought process. Add in Mutual Fund year-end at the close of October, along with massive equity-based client redemptions, and there will be a lot of pain felt again this year for those who have still not adapted to include global Futures trade in their portfolio.

    The fundamental outlook on global risk and debt will change day-to-day and will determine the direction of USD and equity trade. Traders will see technical reversals, fundamental break-outs and tipping points dominate price action in the near-term, which will create volatile intra-day movement as each global region opens and closes. The trade desk has all angles covered and will keep in touch with clients on a regular basis.

    Contact us for further detail and an introduction to the world offutures contracts.

    TheLFB is great for all skill levels. Receive market support, and get TheLFB trader advantage. Sign up today!

    This commentary comes from an independent investor or market observer as part of TheStreet�s guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management. The London Forex Broadsheet (known as TheLFB) is a is a global forex trader portal based in the U.S. TheLFB's mission is to educate retail and institutional clients on the links that bridge the trader and investor to the free-flowing global market. It serves the needs and develops the skills of forex trading clients with its 30 years of trading and market experience.

    TeamLFB maximizes a forex trader's day with support that instills discipline, confidence and structure, enabling the only daily variable to be market-driven. TheLFB service offerings include a mix of complimentary and subscription-based products that cover trade signals, professional grade currency and commodity analysis, comprehensive charting overviews, as well as daily trade desk video reviews. The trader news feed is a proprietary offering that gauges 24-hour market sentiment, guiding all levels of traders on the nuances of each new trading day.

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