Market Journal: SPX Wants Higher
With SPY trading in a range and looking to pick a direction, decisively bullish IG CDX price action the last two trading days is the clue that an upside breakout is coming.
Disclaimer: For informational purposes only.
Please see here for more information about The Weight of the Evidence.
Discussion
As discussed two days ago I have been on watch for a tactical pullback to SPY 20/50dma either through a pullback or time that allows MAs to catch up with price. But the evidence has started to shift in the last two trading days: specifically, IG CDX has begun to move lower, and just this afternoon it moved down sharply to new lows of the day despite SPY closing higher but not at its HOD. Combined with soft price action out of the VOL market, this cross-asset market price action tells me SPX wants to move higher in the near-term.
I positioned for this in Special Ops today in modest size with plenty of time on the position. With breadth weak and sentiment/positioning not at all washed out, and SPY not sitting at a key moving average, I do not believe upside potential is significant…but when IG CDX and VOL move like this it’s almost always a tell-tale sign that more upside is coming, so I wanted to position for that. My hunch is bullish EOM/BOM flows combined with soft PCE data tomorrow will drive SPY to new ATHs before another round of consolidation commences that should then bring SPY down to 20/50dmas sometime in July.
Because it is such a short-term tactical call I am not making any adjustments to positioning in 60/40 or Long/Short - I will wait for a larger consolidation/pullback in July for that.
Exhibits
IG CDX moving sharply lower = unequivocally bullish short-term.
The rest of the breadth, sentiment, and positioning evidence is more middling, suggestive of the fact the market is looking to pick a direction to move out of this recent consolidation. My thought was SPY would drop out of this range, but decisively bullish IG CDX behavior, as discussed above, suggests a breakout is in the cards before a larger consolidation can commence.