Stocks bounced sharply last Thursday and Friday as those who sold short into the impasse in Washington, D.C. were squeezed. The question for position traders now is whether or not to position for further upside in SPY (S&P 500 Depository Receipts) or other exchange traded funds that pace the broader stock market. I’m advising clients at miAnalysis to avoid stock ETFs for the time being.
This chart of the S&P 500 shows the formation of a bearish rising wedge pattern since the May high. Rising wedges often act as reversal patterns to large uptrends. And breakdowns can be severe. Last week the index closed beneath the lower barrier for two consecutive days. Broken trendlines often act as a harbinger of what’s to come after a recovery fails.
Time will tell if this scenarios plays out. My focus right now is on positioning clients for trends in other asset classes – particularly foreign exchange and bonds – through appropriate ETFs. Happy trading, everyone. Best, Chris Burba.
