So it appears that hedge funds are now all long the equity markets which means we will likely have a little more upside in the near term followed by another round of selling later on this year. If the S&P clears the $1278 level then we will likely head higher over the medium term as $1278 is the 200 day moving average. The market model is still holding our 33% short position which can be covered for a 1.5% loss to the total portfolio. While we are hurt by the small loss, the market model is still up nicely since our July 7 short call and we have had absolutely no correlation to the roller-coaster equity markets this summer. Once the S&P 500 hits $1274 we will again be more negative on equities and will likely issue another 100% short position or more at that time. We are now over the 100 day and 50 day MA’s so the vacuum higher should be relatively easy for the robots to perform even without any fundamental reason to move up in the near term. Stocks in general move higher over the long term but the situation in Europe needs to be watched closely.
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The Russell 2000 is nearing the March Lows at $77.70 and I will be watching this level very closely. Looks to me like we will need some type of QE or we can’t catch a bid. That said, we are extremely oversold on most index funds. I would be looking to add to shorts as they cross below their 200 day MA and using the 200 day MA as a stop loss once you short the stock below its 200 day MA. OPEN below $79.65 for example looks to be a low risk/high potential reward short under the 200 day MA….
For the S&P ($SPX.X) watch $1275 and $1270 for a breakout either way… For the S&P 500 we have the 200 day sitting around $1253 and the March Low stand at $1249 — I believe these levels will hold and will give investors a short term buying opportunity/short covering opportunity… That said, we will let price and volume decide how we are positioned in our market hedge positions (shorts)… PRetty wild markets, but we predicted this because the QE2 ending was pretty obviously bearish along with bad GDP predictions.