FREDAlert!
Volume 7, Issue 6
December 11, 2015
SPY is again flirting with the 202 area we have mentioned as a benchmark for the rally off of the 190-area low. We have some points we want to make regarding this and questions we have had.
The main reason we have been concerned about this is that a break of that number is it is the last significant low, and a break of this would turn the very short-term trend from sideways to down.
For this reason, we have been advising some selling on a breach of that number. Our concerns also relate to the relationship between oil, which broke the key 42.50 area, and perceived risk of deflation. When we mentioned this it was not a big concern to the market, but this fear has become widely known.
How would we sell? First, those with concerned or highly risk adverse clients should sell if the market is below 202 with 15 minutes to go – in other words, you want to be out today. Otherwise, we want to wait just a bit – others see the significance of this number as well. See below, as we are only 2/3rd in the market.
We want to raise the concern of whipsaws, which we mentioned back when the rally from 190 got underway. SPY could move above and below 202 several times between now and year end. For this reason, we do not suggest, “selling everything”.
Defensive action implies selling a part of holdings. Recall that we bought 1/3rd at roughly190 and 1/3rd at roughly 205 so advisors should be at 2/3rd invested as our trigger – a close above 211 was never triggered.
Be calm and trade normally. We will have more comments in the Weekly Review. 
