What a Welcome US Equity Market Pullback! Fading EmotionAre you as glad to see the pullback in the US equity indices as I am? Yes, rates are going up faster. Inflation has been acknowledged at a higher rate by the Fed. So what?!
It was no secret that rates could not remain near-zero forever. It also is no secret that inflation has been real in the US . If you live in the US, you already know this from your day-to-day life. So, why the big fuss? Did you need someone to tell you?
I know it is painful when long positions move against a trader quickly. Nobody expected the Fed to come out with the language that appeared this week, at least not anybody that I know. I also realize that it may seem logical to sell equities as a result. But, since when does the obviously logical approach win?
Trading Derivatives carries a high level of risk to your capital and you should only trade with money you can afford to lose. Trading Derivatives may not be suitable for all investors, so please ensure that you fully understand the risks involved, and seek independent advice if necessary. A Product Disclosure Statement (PDS) can be obtained either from this website or on request from our offices and should be considered before entering into a transaction with us. Raw Spread accounts offer spreads from 0.0 pips with a commission charge of USD $3.50 per 100k traded. Standard account offer spreads from 1 pips with no additional commission charges. Spreads on CFD indices start at 0.4 points. The information on this site is not directed at residents in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.
Figure 1 – $TNX Ten-year note treasury yield February 10, 2021 – June 18, 2021, Daily Source stockcharts.com
Perhaps taking a trade like that is just too obvious; too logical. Now, will $TNX increase over time? Most likely it will, but 2023 is a long time from now. We have to wait and see how the new information is digested by the market and go from there.
Can we look to apply similar logic to the S&P 500? For that question, I would like to refer back to the May 12th publication where we discussed $SPX pullbacks to the 50-day simple moving average.
From May 12th:
- $SPX found support around the 50-day moving average on 2 of its last 3 attempts.
- When $SPX broke the 50-day on 1 of the last 3 attempts, it traded below it for 2 sessions.
- When $SPX broke the 50-day in September 2020 & October 2020, it closed below it between 7 – 9 sessions.
Let’s keep in mind that the $SPX traded to the 50-day SMA on May 12th and May 19th, and is now below the 50-day SMA as I write this.
Today, for the SPY ETF traders out there, let’s take a fresh look at recent pullbacks.
Figure 2 – SPDR S&P 500 ETF December 04, 2020 – June 18, 2021, Daily Candles Source stockcharts.com
Can the previous price action near the 50-day SMA give us any clues about what could happen this time? Well, we have the 50-day SMA, and we also have the 414.15 50% Fibonacci retracement level and the 411.79 key 61.8% retracement level. We have been waiting for such a pullback and I don’t think the recent Fedspeak is any reason to negate consideration of buying pullbacks. I know it seems somewhat illogical; that’s why I like it even more.
Keep in mind that such pullbacks to certain price levels could take place in the overnight futures sessions. In that case, ETF traders may not get the exact price they are looking for if markets reverse to the upside during NY trading hours. At least this gives us some levels to consider.
Why I Welcome this Pullback So Much
If you have been following along and are a premium subscriber, you know that I have been waiting for pullback opportunities across many markets. In fact, out of the eight markets that I am covering, I have been waiting for pullback opportunities in six of them . The current price action and additional downside momentum could give us the opportunities that we have been patiently waiting for in several ETFs.
Now, for our premium subscribers, we have a lot to cover. As we approach potentially key levels that we have been waiting for with patience and discipline, a plan is required. There are buy idea levels that could be triggered soon and were very close to triggering on Friday. Not a Premium subscriber yet? Go Premium and receive my Stock Trading Alerts that include the full analysis and key price levels.
Thank you for reading today’s free analysis. I encourage you to sign up for our daily newsletter – it’s absolutely free and if you don’t like it, you can unsubscribe with just 2 clicks. If you sign up today, you’ll also get 7 days of free access to the premium daily Stock Trading Alerts as well as our other Alerts. Sign up for the free newsletter today!
For a look at all of today’s economic events, check out our economic calendar.
Stock Trading Strategist
Sunshine Profits: Effective Investment through Diligence & Care
* * * * *
This content is for informational and analytical purposes only. All essays, research, and information found above represent analyses and opinions of Rafael Zorabedian, and Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. You should not construe any such information or other material as investment, financial, or other advice. Nothing contained in this article constitutes a recommendation, endorsement to buy or sell any security or futures contract. Any references to any particular securities or futures contracts are for example and informational purposes only. Seek a licensed professional for investment advice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Information is from sources believed to be reliable; but its accuracy, completeness, and interpretation are not guaranteed. Although the information provided above is based on careful research and sources that are believed to be accurate, Rafael Zorabedian, and his associates do not guarantee the accuracy or thoroughness of the data or information reported. Mr. Zorabedian is not a Registered Investment Advisor. By reading Rafael Zorabedian’s reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Trading, including technical trading, is speculative and high-risk. There is a substantial risk of loss involved in trading, and it is not suitable for everyone. Futures, foreign currency and options trading contains substantial risk and is not for every investor. An investor could potentially lose all or more than the initial investment when trading futures, foreign currencies, margined securities, shorting securities, and trading options. Risk capital is money that can be lost without jeopardizing one’s financial security or lifestyle. Only risk capital should be used for trading and only those with sufficient risk capital should consider trading. Rafael Zorabedian, Sunshine Profits’ employees, affiliates, as well as members of their families may have a short or long position in any securities, futures contracts, options or other financial instruments including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice. Past performance is not indicative of future results. There is a risk of loss in trading.