S&P at Critical Levels

(Source: Charts are constructed by John C Lee - stockcharts.com)

We are at critical levels on the S&P.

1. The top chart illustrates a trading range that we have developed on the S&P. This can be bullish or bearish but please do NOT base a investment decision solely on a chart. Per the chart, it looks like if we break 1012, then we will see 1005. If we break that, I think 980 looks probable. However, also in the top chart, we see a bull-flag tilt highlighted in blue, which is bullish and if we can hold the range, it could represent a good buying opportunity and then sell those longs a the high end of the range (green top boundary) and 1035.

2. The second chart highlights a strong trend line from the March bottom. The quote "the trend is your friend" is a good rule of thumb of most trades; however, when risk management disiplines kick in, traders will sell their hand when that trend line on chart #2 breaks and we are looking close. Right now futures indicate a 1012 open but it's all about the "closing" number.

We also have a ISM data this morning (at 10a est) so that will move markets. If data looks interesting, I may cover some shorts.

As for yesterday's action, I bought PEP because it fit my criteria of international strength. cheap on valuation, solid dividend, low betas etc. If market tanks, I believe consumer staples could appreciate as well. In addition, low beta names will drop less (normally) in big downturns.

As for shorts here is my currently short book:

Long TWM, short IYR, short SPY, short QQQQ, short LVS, short RCL