After the market's biggest two-day pounding of 2013, US futures are stabilizing this morning with S&P futures up 8-10 handles. Some blamed Big Ben and the Fed, some blamed tightening credit in China, and some say it was just an overheated market that needed a long-overdue correction. I think it was a combination of all three. The S&P was up almost 17% for 2013 and we haven’t hit the half-year mark. Now the question is, how deep will this correction be?
So far from the highs of 1687 down to 1584 it’s been almost a 6% correction. The way you judge the potency/long-term significance of a move is by the strength of the counter-trend snap-back. With only more week left in June and until the end of the second Quarter (potential window dressing), we might see some choppy type bounce in coming sessions. I would map out Resistance level #1, 2, and 3 in whatever stocks/sectors you're trading in order to potentially trade the bounce and then potentially look for new areas to short (if you are in the camp that we will see a deeper correction later this Summer).
S&P resistance #1 for a feeble dead-cat quick snap-back is around 1598-1608.
S&P resistance #2 for a retest of the 50-day moving average is 1618.
S&P resistance #3, the line-in-the-sand for bears to maintain control would be 1624-1628.
For intermediate-term traders there were opportunuties to peel-back risk and even potentially position yourself short. At the time we talked about the May 22nd outside "Red Dog" reversal" as a day to take notice. Then on Wednesday, after the initial reaction to the Fed announcement, we saw a break of the upper support level around 1640ish, which was another sell/short signal. Right now I don't think there is much edge putting on swing positions short or long. I would wait until potential end of month/quarter window-dressing to put on new swing shorts.
If the market doesn’t hold the gap up today you have support on the S&P at 1584, then the 100-day at 1576. I see very big support at 1530-1540, which would be a spot that I would love to see this Summer to accumulate some swing longs for the Fall.
Enjoy the longest day of the year and what looks to be a beautiful weekend.
*DISCLOSURES: Scott Redler has no positions