SPX 2820-2940 Support Becomes Resistance

During the middle of the trade war rhetoric in August 2019, the SPX had a little pullback down to the 2820 level, and subsequently traded between 2820 to 2940 for about 3 weeks.  It was the support zone which eventually launched a big rally later in the year.  Now that support area has become a stiff resistance level.  It has violently turned down the SPX momentum as soon as it got towards that 2940 level.

Its funny how these big air pockets coincide with after the fact comments from hedge fund favorites like Druckenmiller and Tepper.  These guys are always talking their book, and often use their fame and reputation to manipulate markets in the short term to get favorable entry or exit points for large scale positions. It was no coincidence that Paul Tudor Jones was hyping up bitcoin as the fastest horse in the stable after it had already rallied big and before a much publicized halving which ended up being a huge buy the rumor sell the fact event.  You can bet that PTJ was dumping bitcoin right after he was hyping it.  A page out of Livermore's book, something he himself says is the best trading book ever published.

It doesn't make me any more bearish because these famous hedge fund managers are bearish, it is noise to me, because while some of them are right more often than not, some of them are reliable contrary indicators.

There are many reasons to be bearish: earnings fundamentals, overvaluation, reduced corporate cash flows, etc. and maybe the only two reasons to be bullish is the Fed put and light hedge fund equity positioning.   But the Fed put is at a much lower strike price than current levels so it wouldn't protect buyers at this level of the S&P. And really the only reason I haven't been more aggressive on the short side is because of hedge funds being under allocated to stocks.  But some of that has been changing over the past couple of weeks, especially equity long/short hedge funds, which have gotten much longer recently.  Really its just the macro funds and the CTAs which have very low levels of equity exposure.  If they do ever join the bull camp in the coming months, then it would be a screaming short.

After 2 nasty selloff days, with tomorrow being options expiration, the SPX 2800 level will probably be defended vigorously by market makers and banks, so I wouldn't be surprised if we bounced today into tomorrow morning's SPX options expiration.  I will consider a short if we can get to the 2860-2870 level tomorrow, otherwise I will wait to see what happens next week.