The Big Picture - Macro Perspective on the Capital Markets, Economy, Technology, and Digital Media

Kevin Lane is one of the founding partners of Fusion Analytics, and is the firm’s director of Quantitative Research. He is the main architect for developing their proprietary stock selection models and trading algorithms. Mr. Lane is a member of the Market Technicians Association.

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As seen below in the S&P 500 has been capped by resistance at the 950 level (red lines and arrows). As we had said in earlier S&P 500 notes we expect this level to mark a high water mark for a good period of time as we enter the seasonally weak period of the mid to latter summer. How deep of a correction we get will depend on the ability of the S&P 500 to hold support near the 875 level (purple line).

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S&P 500 Index (SPX)
click for larger graphic

Source: FusionIQ

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The best case scenario is we stay locked in a trading range between 950 and 875, while the more alarming scenario is we break back below the 875 region and we have a deeper sell-off as part of a retest of the lows.

So far the rally has been aligned with the reality that the economy was not nearly as weak as many had anticipated. However going forward the market won’t get such an easy pass and just being not as bad as expected won’t fly.

So from an investment standpoint this new technical picture in the S&P 500 means curtailing trading activity on the long side, building cash (until the picture becomes more clear), tightening stops and possibly introducing some short exposure. Clearly the easy money has been made off this rally and now the market is taking back some of that easy money so investors need to step back and reassess and not get sloppy.

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