We’re currently stuck in what we like to call, “Hurry Up and Wait” mode. This is a phrase that John has coined, but it’s stuck with me and this is the exact moment to use it.
Why? The S&P has been stuck between 2885-2900 for the past several days. Generally, a key psychological value like 2,900 is a good area of key resistance to come in and short the market… especially when it’s been trading higher for so many days in a row, and it’s extended on the daily time frames.
However, this time there’s a caveat — why?
2,900 is only 57.25 points away from a new, all-time high in the S&P 500. Generally, when we are so close to a new, all-time high like that, it sort of acts as a magnet. So, for me, while an intraday short at these levels could work, ultimately I’m looking for the market to break 2,900, and make a new all-time high.
S&P Futures — Daily Chart
On this chart, you can see the that the S&P is a stones throw away from new, all time highs. While it’s climbed so far since December 24th, and normally I’d look for a pullback, I can’t help but feel the new all-time high is a self-fulfilling prophecy.
Keep in mind, several key names, such as Microsoft (MSFT) have already made new, all-time highs this year. Where the leaders go, the indexes will follow.
So, why are we waiting?
For one I’d argue that I’m positioned to the long side currently, though I’m waiting to add more, and I’m waiting on the break. Why? Because on a break of key psychological resistance like this, you usually need a catalyst to get the market going.
What could it be? I’m looking at three possibilities…
- Fed Meeting Today: Whenever there’s a Fed meeting, there’s always the potential that something they announce will move the market. In this instance, I’m not looking for anything shocking but that doesn’t mean it won’t happen. The Fed has already decided they won’t raise rates this year. However, today we’re supposed to hear from key bankers. Last week, the CEO of JPM, Jamie Dimon, released his annual letter to shareholders. This letter noted how strong the economy is — which is good for the stock market. With continued positive comments from the Fed on the state of the economy, I expect the stock market to continue higher. You can read the letter here.
- The High Put/Call Ratio: When too many people are short, rather than long, the market gets lopsided, and we get what’s called a ‘high put to call ratio.’ This happens when traders think the markets will fail at a key number. However, my favorite part is when they’re wrong. Something will happen, and the market will trade higher — forcing shorts to cover, and quickly — causing an even further pop higher in price. This is what we call the short squeeze.
- Earnings Season: The banks start reporting earnings on Friday. It’s widely expected that this quarter’s earnings season won’t be ‘great.’ So, guess what happens if companies surprise on low expectations? That’s yet another catalyst to send the stock market higher. Banks always start off earnings season, and the bank earnings last quarter were excellent — boosting investor confidence right before the start of the season.
So, for right now, what am I doing?
Well I’m maintaining my long portfolio, watching for a catalyst, while understanding that we could potentially pullback to the mean at anytime. But I’ve got my eye on the prize (the S&P at new, all-time highs), and I want to be in the move when it happens.
Danielle. Great post. Covered all the options (no pun intended) with clarity and insight. Thanks!