The weekend didn’t end with an agreement to raise the debt ceiling and stocks around the globe have been punished. Event risk is palpable this week with Fed Chairman Bernanke speaking on Wednesday and the labor report due Friday.
While I have reservations about upside potential before a correction or primary downtrend begins, the larger trend in the S&P 500 is still up. That means a reversion to the daily mean (20-day simple moving average) in the S&P 500 (SPX) could present a buying opportunity in SPY (S&P 500 Depository Receipts).
KEY LEVEL TO WATCH
SPX is poised to test the mean Monday. The index is also trading in a demand zone at 1698.8-1679.6 based on the topping activity in July-August and the May high. From a risk/reward perspective, this should make for an attractive long entry scenario for a swing trade (two- to 10-session time horizon).
KEEP POSITION SIZE SMALL
I’ll be monitoring SPY at miAnalysis, along with a long call in IJR (iShares CORE S&P Small Cap) I published last week that will be threatened today. This will be a tricky week to navigate since market direction will largely hinge on the news flow. That makes for a difficult environment, but could also present opportunities. Keep position sizes small. Set hard stop losses and abide by them. Have a good week, everyone.
