Trade Ideas for S&P 500 Reversal and Lower TSX

06/19/2017 2:53 am EST


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. This week (June 19) is likely to start indecisive to positively in North America as investors sift through Fed-Speak on Monday/Tuesday.

Followed by generally lite/soft data for the balance of the week, wherein we will be focused on price levels and currency markets; in particular whether the USD can bounce off lows taking equities higher or bounce because equity investors are starting to de-risk. Our expectations for the week:

• USD and Treasury yields rise into the week’s end (PowerShares DB US Dollar Index Bullish UUP target of $25.39).
• Oil bounces off $44 with $46.55 in sight; energy equities move in tow.
• Gold stages a bounce off $1,251 to $1,280 but swings high into week’s end.
• Eurozone Equities cling to highs front end of the week but soften to end.
• S&P 500 starts the week >2,430, attempts to limp-out to new highs 2,447-63.
• TSX bounces back above its 200-Day Average (15,244) with 15,400-360 with our Trader Community voted on Scenario B (indecision) to play out this week Strategy (Short-Term = Days-to-a-Week):
• Use price strength to trim mid-to-longer-term positions.
• Limit, reduce and/or trail with stops defensive equity positions (Utilities, Staples, REITs, Telecom).
• Short-term risk-capital only to play break-out above 2,446 on S&P 500 and bounce above 200-Day Average on TSX (15,244) in the following cyclical spaces: Financials, Energy, Industrials.
• 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.

View the latest videos from Ziad Jasani of the Independent Investor Institute here

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