With another rejection in S&P 500 below 1880 and the 1840 support broken, the index has shown signs yesterday of exiting the sideways range trading to the downside. This has bearish implications to the larger picture we have, as the fake upward break out to 1897 and the strong downward reversal that tested support at 1840 once again, confirmed it and then broke it, all these are signs that we are heading for a deeper than normal correction. Our intermediate term view for April and early May targets the previous important low in S&P at 1737. I believe this level will be tested and this correction if it breaks this level, it can even break below 1700 towards 1650.
The chart above shows clearly how yesterday’s move has broken the sideways price range that was holding for more than a month. Trading today subscribers were ready for such a decline as we initially shorted this market late March to close our short positions on the way down to 1840 in early April and then yesterday I informed through my live trades twitter account for subscribers that just after the open we took long positions in Volatility S&P 500 May Calls when VIX index was at 14$. We all know what happened next. A small sample of my twitter feed to subscribers can be seen below. I was expecting another rejection below 1880 yesterday and I was planning on buying bearish options or selling S&P June futures. I chose the first and at the end of the day my long calls on VIX were nearly +30%. This example is not to promise extraordinary profits and an easy way to make money through our subscription services. I have winning trades as well as losing trades. The important thing is to be consistently profitable every month. This example is to show you how we react on an important juncture the markets are currently in and to show what subscribers receive when paying only 34.95$ per month for my Live Twitter trades service for European Indices and US Indices. This is just a sample and much more analysis and predictions are daily sent through this exclusive account.
S&P 500 is turning downwards and in this website I have many times mentioned that divergencies near the highs of 1880 are a bearish sign and that bulls had more to lose than bears. Although my longer-term view remains bullish, I believe April and early May will be difficult for stocks. I expect the S&P 500 to test the upward sloping pitchfork support and to challenge the Ichimoku cloud support. There are very slim chances we see S&P 500 back above 1875-80 again, so any upward bounce should be sold as I believe we have started the decline towards 1790 first and then 1740-50.
After this downward move is over, I expect the S&P 500 to reverse strongly upwards to finish the first semester with a strong move towards a double top if not new all time highs towards 2000 points. All in all, I believe that this tradeable correction should be taken advantage of, but we should also keep in mind the bullish potential after this correction ends.
Concluding, I remain bearish targeting at least a move towards 1790-1800. I strongly believe that this decline will test 1740-50. A break above 1890 will cancel all bearish indications and signals I have. For this bullish scenario I give 5% chances. For a decline below 1800 I give 70% chances and for a break below 1700 I give 10% chances. Reaching previous important low at 1737 is possible. I give this scenario 15% chances. As always, thank you for taking the time to catch up on my thinking.
Disclosure: None of the information or opinions expressed in this blog constitutes a solicitation for the purchase or sale of any security or other instrument. Nothing in this article constitutes investment advice and any recommendations that may be contained herein have not been based upon a consideration of the investment objectives, financial situation or particular needs of any specific recipient. Any purchase or sale activity in any securities or other instrument should be based upon your own analysis and conclusions.