Trading position (short-term; our opinion): no positions are justified from the risk-reward perspective
The S&P 500 upswing continued yesterday, though the daily chart doesn't reveal the full story. But it's higher prices what counts, right? Wrong - the setup must be examined and consideration given to more details. So, let's do that prior to jumping to any conclusions.
The intraday volatility remains high, yet was highest after the open, and then spiked again in the final 15 minutes of the regular session' trading. After the bullish opening gap, the buyers have been reaching out for higher prices before stalling halfway into the session. That was the moment when we cashed our newest 38-point profit yesterday, bringing this week's total to a 340-point gain.
Since then, stocks had noticeable issues overcoming the 2600 mark, but the session's last 15-minute candle delivered the final upswing. While stocks closed at 2630, they went downhill ever since. In today's overnight session, they broke back below 2600 and failed to recapture this level. As the S&P 500 futures trade below 2540 currently, the bias is shifting ever more to a bearish one.
If you looked solely at the daily chart (chart courtesy of http://stockcharts.com) below, the above observations wouldn't be at all apparent, would they?
Perhaps the daily indicators bring a bullish message to the table? Unfortunately not. While Stochastics is on a buy signal and has left its oversold area, the impression the indicators give, is one of working out oversold readings. With both the RSI and CCI are approaching their neutral readings, the time is getting close for a renewed selling wave.
That's the technical view of things. The fundamental one is not much more supportive of the bulls. On the coronavirus front, there have been no really good news coming from the US lately, and the Fed and fiscal moves to alleviate its impact have been discounted in the prices already.
Despite the tremendous stimulus, stocks are not responding very proportionately. Stating the obvious, this tells us the problem is not of a monetary or fiscal policy nature. After yesterday's almost 3300K initial unemployment claims, what will be next week's tally? Much depends on the policy steps taken and tradeoffs chosen. Either way, the fundamental outlook for stocks isn't bullish right now.
Does it preclude them from making a quick rebound during today's session? Not in the least, though a noticeably bullish intraday move is very far from guaranteed, to put it mildly. On the other hand though, the current futures or SPY pricing doesn't offer us an opportune point to enter on the short side from the risk-reward perspective.
Let's bring up our yesterday's points as they ring true today as well:
(...) Careful monitoring of both the technical and fundamental situation would allow us to identify such an opportune moment. And in general, that goes for both the long and short trades. In these exceptional times,capital preservation is the call of the day as we're in it for the long run. Therefore, we're keeping our powder dry at this moment, and will let our subscribers know once a promising setup (long or short) presents itself.
Summing up, whilethe bears have the upper hand, and the temporary upswing has run into stiff headwinds, it can still retrace a part of the premarket decline. Unless the bulls show up in force, it no longer has the benefit of short-term doubt though. Considering the risk-reward perspective, we're not entering into any new trades after the recent profitable string of respectable gains. As always, we'll let you know of the next worthwhile setup to jump on.
Stock Trading StrategistSunshine Profits - Effective Investments through Diligence and Care