Splash Zone Weekly Wrap Up: 7/3/16

To put last week into words and the Friday that proceeded it, will be difficult to do. It is a rarity that price action behaves in the manner that it did. In fact, for the market to be down 4% on the month with only 3 trading sessions remaining, and yet wind up in the positive for the month (albeit barely) hasn’t happened since 1938. 

Considering the market has just made such a massive downside move the two days prior following the rally makes it even more phenomenal, as opposed to gradually over the course of a few months. 

There are a couple of things to consider in this current state of trading. 1) To go where the market wants to take you 2) To respect past price behavior. Obviously with the former the market has rebounded and wiped out nearly all of the Brexit losses and has traded 4-days higher. The latter says that above 2100, market rallies sputter and die out. 

Fading the market rally is the best route to take here. Primarily because of the management of risk. Volatility still remains in this market and should downside re-emerge following this 4-day rally, then 20-40 point swings could re-emerge. To the upside, you have new all-time highs at 2134. That is only a 31 point move away. And between current price and 31 points higher is where two years worth of rallies have consistently met their end. So odds are that will happen again (until it doesn’t). Also risk shorting this market here is better, and the reward even better. If the market is going to make new all-time highs it is likely going to be clumsy and in a churning like manner. A legitimate sell-off will be hard and fast. 

The latter appeals to me much more and the risk is better as well.