By Jim Samson, trader, bestselling author, self-made millionaire.
By the time you read this, when markets have opened, the question of ‘bull or bear next?’ may well have been answered.
I’m writing this on Sunday evening, and as I look around, markets are on a knife-edge. And this has opened up some great opportunities. As is customary for Monday’s letter, we’ll turn to a few charts to explain these opportunities…
First up, the benchmark index, the S+P 500 (all charts from stockcharts.com):
The 50-day average (blue line) became a ceiling of resistance to the S+P once it fell through it in mid-August. I recently wrote that unless it gets its head above 1670 soon, it won’t be good. And it seems the S+P heard me…
Remarkably, Friday’s price range bar kissed the ceiling of resistance, leaving us in suspense for the whole weekend. If the next move takes it decisively above resistance at 1665, you can put money on a bounce and a continuing bull. But if it heads down next, bouncing off the ceiling, well, that will be bearish.
We can also turn to a few stocks to see this knife-edge situation, each of which are on the verge of either falling or booming…
Look at Microsoft:
I drew the horizontal blue line in there to show you the strong floor of support it has around $31. The more obvious the floor of support, especially when horizontal like that, the more significant a break below it will be.
The next market move may either send MSFT into a bounce or a nasty fall. So MSFT is a nice short at around $29.50 or a nice long trade at these levels with a tight stop at $29.50 in case that nasty fall happens. See the opportunity these situations present?
And with China’s recent numbers pleasantly surprising us, let’s look at steel companies like US Steel Group, the exact opposite situation to Microsoft:
Strong ceiling at around $19.50 (my horizontal blue line), but the next market move could send it higher, hence a good buy at around $20 (which also nicely coincides with the 200-day moving average- red line- and $20 is a nice round number, psychologically). A breakout there for this stock could be very meaningful.
So the S+P walking a tightrope, and stocks at critical junctures. This will be an interesting week, and a profitable week either way for smart traders.
The wildcard is still Syria, anything can happen there, so some downside protection and tight stops are warranted. But bull or bear next, let the S+P itself tell you, not all the talking heads and noise. And whichever way it says it’s going, you now have a nice short and a nice long to play it.
Best,
Jim.
