SPX Update: Friday 3 July 2020
· Composite Global Equity Market Sentiment is back to levels of Extreme Bullishness. This is likely due to the rally in US large cap (mainly Tech) names.
· This is not necessarily a signal for an imminent top but is certainly a warning to be wary of a short-term correction at the very least.
· I have lightened up on the SPY longs while leaving the medium-term option plays elsewhere. The idea is to have ammunition to deploy should the Accumulation Zones depicted below be realized.
· Scenario summary:
1. Bullish: Ephemeral, minor weakness post 4th of July and then the market takes off like a bat out of hell (sentiment picture suggests this is the least likely);
2. Consolidation 1: The market remains bounded between the major 2980/3170 levels through most of July and then takes off;
3. Consolidation 2: Similar to Consolidation 1 but the resolution includes a head-fake to the mid-2800s before taking off;
4. Bearish: A sharp move possibly to 2840 to clean out the bullish froth
· The sentiment picture pushes me to favour one of Scenarios 2 through 4 i.e. we may see a post-4th pop 3190/3200 but then we correct…the speed of the move lower will give clues as to whether one of the consolidation options is under way or the sharper sell-off…incidentally, Consolidation 2 would likely be the most painful for the most people…chop and the bearish head-fake…ouch!
· Recall also that the medium-term cycle tail-wind wanes into the end of next week and gives way to a slight head-wind through the end of July
I will be waiting with bids in the Accumulation Zones.
