Just a quick note today, heading into mid-September, states Jon Markman, editor of Strategic Advantage.

Traders should always follow the money. Despite bad news out of China, Europe, and the Federal Reserve last week, the S&P 500 (SPX) added 3.7%. The benchmark index soared on Friday alone by 1.5%, to 4,067.

The rally means bulls have taken back the 50-day moving average at 4,030. That level is now critical support.

Bears are rightfully freaked out. New covid policy lockdowns in China, Russia shuttering natural gas supplies to Europe, and a parade of hawkish Fed talking heads should have sent the S&P 500 reeling.

Yet institutional buyers appear to be cautiously looking past the bad news. Rick Reider, chief investment officer at BlackRock, a $10 trillion professional asset manager, told Bloomberg last week that parts of the stock and credit markets are extremely attractive. Pros helped bulls reclaim the 50-day moving average. Now there isn’t any important resistance until 4,175, the March and June pivot level.

Strategic Trade

I was skeptical that the rally last week would have legs. I was wrong. We had recommended ProShares Ultra Short S&P 500 (SDS) at $44.29. The SDS closed Friday at $42.82, and the position was exited on stop at $43.05, a loss of 2.8%.

I’m disappointed by the loss, as always, but not discouraged. Losses happen, but the trick is to keep them small and learn something. 

That said, I’m not completely convinced that bulls have earned a hall pass back to the August highs quite yet...

The next big event on the horizon for traders is the Consumer Price Index report on Tuesday. If the news is bad but stocks rise sharply, the fix is in.

Learn more about Jon Markman here...