SPX broke back over the 5dma on Friday with considerable conviction, so today and tomorrow are the other two days on the 5dma Three Day Rule, explained on the chart below. In essence though, if we should see a daily close significantly below the 5dma either today or tomorrow, currently at 1880, then a retest in the very near future of the low at 1812 would be very likely. I have found no exceptions to this rule since the start of 2007 on something like forty instances where there was a Three Day Rule breakdown.
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Welcome Weakness
I confess that I got very spoiled the first 2 1/2 weeks of the year, with bulls stumbling all over themselves, looking every bit the fool that we bears did for so many years before. What a bummer that the market actually caught a bid mid-Wednesday, giving the bulls a 2 1/2 day rally. Since my bearish spirits had been reinvigorated, and I had pushed back into 70 shorts (and 0 longs), I was naturally a little apprehensive about how trading would go on Sunday and into this morning.
Well, the ES and NQ bobbled between a little bit up and a little bit down for hours, but last night, all it took was one dude to change that: a spokesman for a single oil exporter said they’d be keeping their investments in place for energy extraction. That was seriously all it took. One company and one innocuous statement about how an oil driller is – – wonder of wonders – – going to keep drilling for oil.
Oil had thus given up some of those recent gains (black line below), and the ES, which is absolutely joined at the hip to oil these days, got dragged low (in blue):
For me, my position remains the same: lovingly-chosen individual short positions, one of which – Caterpillar (CAT) – is already having a nice tumble this morning. Good luck to you all out there today. Don’t slip on any oil puddles.
