Broad US Stock Market Update At Critical Juncture
Well, we got our short covering rally in the broad market after non-confirmation of the recent low by various indicators, and now the market has risen up into shorting territory again. There was apparently a sudden 10% drop in China last night, which, although it doesn’t affect the US market directly, isn’t exactly helpful, and appears to have taken the steam out of futures.
On the 2-year chart we can see that the market has risen back up close to heavy resistance near the highs again, with this rise, as predicted in THE 2001, 2008 AND 2016 MAJOR DEATH CROSSES IN THE S&P500 INDEX not stopping the very bearish cross of the 250 and 500 moving averages, so it does look like we are at a good point to short the market here, with the weakest sectors of course being best for this purpose.
I am aware of the arguments of Larry Edelson, Martin Armstrong and others that with Europe falling to bits, money is flowing into the US, and while there is some truth in this, if all global markets decide they are going to go down in unison, due say to rising rates in the US and elsewhere, US markets are unlikely to be spared. At this time options are probably a safer and more effective way to play this setup than inverse ETFs, the reason being that you only have to risk a small stake to obtain big leverage, and after the rally of the past week, Puts are cheap. Having said that these are only suitable for experienced traders who understand the risks involved, and know how not to overdo it. Those interested might like to consider Puts in SPY, whose chart, which is almost identical to the S&P500 index, is shown below.
Suitable SPY Puts include the July 200.50 at $1.19 offer, but pretty much any may be considered according to personal preference. VIX Calls are another possibility, but they are considered to be riskier than SPY Puts and have wide spreads.
Courtesy of Courtesy of http://www.clivemaund.com