Here are some reasons why traders should be short-term cautious about the stock market. Bloomberg reported that stock vs. bond sentiment is at a record high, which is contrarian bearish for stocks.
A downside break?
The S&P 500 has been advancing while exhibiting a series of negative RSI divergences. This is a risky condition and a downside break is bound to happen sooner or later. Initial support can be found at about the rapidly rising 50 dma, which is in the 4400-4450 zone. If initial support fails, strong support can be found at about 4200. That said, today’s stock market downdraft spiked the VIX Index above its upper Bollinger Band, which is a sign of an oversold condition.
My inner investor is opportunistically accumulating stocks in order reach an overweight position in equities. My inner trader is short the S&P 500. The usual disclaimers apply to my trading positions.
I would like to add a note about the disclosure of my trading account after discussions with some readers. I disclose the direction of my trading exposure to indicate any potential conflicts. I use leveraged ETFs because the account is a tax-deferred account that does not allow margin trading and my degree of exposure is a relatively small percentage of the account. It emphatically does not represent an endorsement that you should follow my use of these products to trade their own account. Leverage ETFs have a known decay problem that don’t make the suitable for anything other than short-term trading. You have to determine and be responsible for your own risk tolerance and pain thresholds. Your own mileage will and should vary.