Volatility on Tuesday was extreme, however in the end bulls extended their winning streak to three days, states Jon Markman, editor of Strategic Advantage.
The S&P 500 (SPX) closed at 3,828, a gain of 0.6%. Bulls have been climbing the wall of worry since last week when Federal Reserve Chairman Powell said the Fed may need to tighten beyond 4% in 2023.
That news should have sent the benchmark S&P 500 reeling. Yet the weakness lasted only one session. More worrisome for bears, the subsequent strength has all of the earmarks of legitimate buying from bulls, not simple short covering. Deep cycle stock groups like banks, industrials, and semiconductors are leading the rally.
Professionals are clearly putting money to work in anticipation of a larger yearend advance. Pros got a solid test at midday when bitcoin skidded 9.7% after FTX, a major cryptocurrency exchange agreed to an emergency buyout offer from Binance, it's contemporary. In the past bitcoin liquidity crises have sparked contagion fears.
The stronger close on Tuesday for the benchmark suggests underlying strength. The next important overhead resistance level is the 200-day moving average at 4,090. Critical support is 3,680.
Strategic Trade: Current position is WisdomTree Bloomberg Floating Rate Treasury ETF (USFR), a cash alternative. We now expect the S&P 500 to trend toward 4,090.
Place a new order to buy the ProShares Ultra S&P 500 (SSO) at $43.40. If filled place an order to sell the SSO at $52.90 lmt gtc, and a stop order at $40.60, good-til-canceled. If this trade works the potential reward is 21.9%, versus a possible loss of 6.4%.
