The $SPX bounced back from Friday's pullback to close up 1.31% at 1202. Despite the impressive day for the bulls, we remain in a broad channel after our most recent rally since February. As the 30 minute chart of the $SPY below shows, we have violently swung above and below the 120 level (or 1200 on the $SPX) several times in the past few weeks.
Moreover, our resistance and support levels are clearly defined, as I note in the chart above. Until we breach this choppy range either way, I continue to believe that holding a very high level of cash is the correct strategy. If you are a nimble day trader, then you will likely find this current market appealing. However, I do not see many good swing setups developing quite yet. My $SPX chart, updated daily for you below, supports this idea that we are working through an increasingly volatile range.
The bears have several facts in their favor right now, namely the loud disagreement (in the form of increasing price swings) between the bulls and the bears right at the 20 day moving average and the 1200 level on the $SPX. Some of the key momentum names of the past few months have seen profit taking as well, such as $GMCR and $AMZN. Moreover, in the face of the Austrailian tax hike on miners, several marquee names in the materials sector are seeing multi quarter break downs, including $RTP, Rio Tinto (see chart below).
The bulls, on the other hand, can point to the fact that the overall market has done an excellent job of hanging tough given all of the headlines over the past few weeks. In fact, part of the reason why I reduced half of my short hedges today is because of the strength in the transportation sector, traditionally a leading indicator.
With my cash position currently north of 65%, I am content to wait for better setups. A major part of being a profitable trader is knowing when to lay off of the action. In my view, trading without an edge has a negative expectation. To drive a point home, it is a big time money loser over the long run. Believe me, when the time is right I can be as aggressive as anyone else. Now, however, is not that time.
Top Pick: Cash (and observe the action closely)