Trade Ideas for S&P 500 Reversal and Lower TSX

Focus: Strategies

Ziad Jasani Image Ziad Jasani Managing Director and Partner, Independent Investor Institute

If the S&P 500 reverses and breaks support of 2,400 and the TSX breaks below 15,175-110, closing most short-term long-side trades make sense, asserts Ziad Jasani, Co-founder of The Independent Investor Institute, Toronto, in his weekly Monday Trader video.

According to the US Fed, specifically Janet Yellen, their plan to “normalize” rates is still intact, despite GDP forecasters ratcheting down their numbers, despite inflation data (CPI) missing targets, and despite Mr. Market not taking the implied odds of another move in December 2017 any higher (remains under 40%).

Are equity markets so dislocated from the current economic reality that they can keep rising? Yes.

If the S&P 500 can make it back above 2,446 the next stop on the train higher would be ~2,463, and then ~2,500 (these marks are the 1 and 2 standard error levels higher based on the last year of price action).

If however the S&P 500 breaks and closes below support of 2,400 we are likely in a pull-back or correction with a target of 2,275–2,200. The Toronto Stock Exchange (TSX) is fully leveraged to the movement of the S&P 500 and commodities.

Last week’s breakdown below the TSX’s 200-Day Average (15,244) was bearish, but dip buyers are likely to push the TSX back up to the 200-Day Average and attempt a test of resistance at 15,400-360; assuming Oil gives us a bounce.

The odds of another “epic” build in Oil inventories is significantly lower than last week, and Oil finds itself readying for a bounce off support at $44.