bulls fail to inspire as august gets underway

$SPY bulls had momentum on their side coming into this week, unfortunately they couldn’t keep the ball rolling as they managed to trend lower every day except for Wednesday on a short lived pop. We closed right on this key inflection point at SPY 208 and while we managed to bounce off the lows on Friday this market still seems vulnerable going forward. Short term momentum is once again heading lower and we need to look for this 207-208 area to hold as support otherwise we’ll find ourselves testing the lower end of our year to date range at 204.50. There’s been lots of noisy knee-jerk moves over the past couple of weeks and if you don’t want to live in the day to day noise then all that matters is this larger 204.50 – 212.50 range. Until we resolve, expect more of the same choppy behavior.

$IWM last weeks action resolved lower in classic bear flag behavior and we closed just below a significant area of 120. This was the top of the 1 year range that we broke out of earlier this year in January and now we are threatening to fall back into the mess if buyers don’t take a stand here quickly. If you look at quarterly performance the IWM is -4% versus the SPY at +1% as we continue to see under-performance in the small caps. Clear lower highs and lower lows for the past 2 months and i’ll need to see that change before I get even mildly interested on the long side again.

$QQQ appears to be the index the bulls are all crowding to. It still managed to trade down 1.46% this week but it’s positioned much healthier in the overall trend than the other indices. 109 is an important level to hang onto and then ultimately getting back above 111 – 112 would put this chart back into bullish alignment. If we a bounce in the market next week, expect this one to lead on the upside.

Bottom Line: after this week uninspiring performance all around it’s likely to have converted many more traders to the bearish camp (myself included to some extent). The prior aggressive leaders like biotech (IBB) and healthcare (XLV) are cooling off meanwhile the boring consumer defensive, staples, and utilities are all finding a bid. On the other hand this market has struggled to put in back to back red weeks all year so let’s see if we can get some bearish follow through next week. The Trade Risk portfolio is positioned roughly 32% long 68% cash.

Keep an eye out for a trade ideas video later today and make sure to drop your e-mail on the trade risk weekly newsletter going out later today.