S&P500 Testing Key Area, Here’s What To Know

$SPY markets kicked off the week with it’s 4th open gap higher of more than 0.50% in the just the past 6 sessions. This rally from 182 has been fast and furious as we’ve made a 13 point sprint higher cutting through all of the negative doom and gloom headlines.

We now find ourselves at a very important area, specifically where the market failed in early February at 194.50.

If we look only at the price action of today it’s reasonable to conclude the market doesn’t really care about this level (so far), as it closed near the highs of the day making this the highest close since January 6th, just 3 trading sessions into 2016. On the other hand we know based on history, markets often overshoot to the up and downside which is why we need to pay close attention to the next few days.

The bullish case is the speed of this rally, the unforgiving and relentless gaps higher, and just today the bullish 8/20 EMA cross over highlighted above.

The bear case is the declining longer term 50 day and 200 day moving averages just above price, the horizontal resistance zone we are testing right now, stretched run-away price action, and $NYMO as seen below printing above historically overbought +60 area.

Given everything above, from a pure risk to reward standpoint, these levels certainly favor the bears right now, but importantly we have no price confirmation to act on yet. Until we see at least one day where we convincing hold below the previous days lows, or some type of meaningful push-through failure (reversal) pattern, there’s no reason to believe price can’t keep doing what its been doing.

As far as our positions, members and I are lightly holding some long exposure (defensive utility names) but primarily it’s a high cash position waiting for more clues/context to deploy on either the long or short side.

BIS is my go-to vehicle on the short side if things get turbulent over the next few days. Back above $46 and I’m interested.