The market has been trading sideways in a rather large range since it topped in April. It seems that most investors are on the fence, holding small positions, but waiting for the market to make a decisive move before committing themselves to one side.
However, there could be some trading opportunities in the coming days in the S&P 500, bonds and the U.S. dollar.
S&P 500
There has been a lot of talk about a sharp rally if the S&P 500 could break the 1,130 level or the neckline. The market pierced those resistance levels, and many traders switched their view from bearish to bullish.
While I prefer to trade with the trend, I can’t help but feel this market is still range-bound, which is why I remain bearish at these shakeout levels. The SPDR S&P 500 ETF (NYSE: SPY) did break resistance, but the following candle did not close above the breakout candle’s high to confirm the move. That said, the market is now trading back down at support, and the next couple of days should shed some light on the future direction.
SPY Daily Chart
20-Year Treasury Bonds
We have seen bond prices pull back in a bull flag formation. The iShares Barclays 20+ Year Treasury Bond Fund (NYSE: TLT) touched support before bouncing to break short-term resistance, and it looks to have started another rally.
The chart below overlays both the candlesticks of TLT and the S&P 500 (white line). You will notice that they have an inverse relationship. If bond prices continue to rally, then the S&P 500 could start to roll over.
TLT Daily Chart
U.S. Dollar
The dollar has fallen sharply in the past 10 trading sessions and it looks to be oversold for a couple of reasons. In the past few days, the PowerShares DB US Dollar Index Bullish Fund (NYSE: UUP) has dropped straight down and gapped lower. This recent drop has reached a gap window, which should act as support and could provide a tradable bounce in the coming days depending how things unfold.
UUP Daily Chart
Mid-Week Market Analysis
In short, the S&P 500 is flirting with resistance and has yet to confirm the breakout. Bond prices look to be headed higher, which makes me think equities could start to sell off any day now.
It’s also important to note that Goldman Sachs Group, Inc. (NYSE: GS) and JPMorgan Chase & Co. (NYSE: JPM) shares have been under pressure, and they tend to lead the broad market.
Another point to add is the fact the oil has not rallied even though the dollar dropped like a rock. What happens if the dollar bounces? Could oil finally start its next leg down?
Gold and silver continue their steady grind up. The price action reminds me of the 2009 November to December move. Once that train derails, we’re going to see a sharp correction.
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