Markets continue to whip as debt negotiations stall

By this point it is cliched, but also accurate, to say that US debt ceiling negotiations are driving the markets. Events in the European Union, such as Greece's downgrade by Moody's last night, are now merely an afterthought to global traders--at least for the time being.

This morning the S&P 500 opened sharply lower as "bi-partisan" negotiations seemingly broke down over the weekend. But within 20 minutes of the opening bell, the S&P 500 easily started its climb back up to Friday's close at approximately 1345 on the SPX.

Market whips continue on the SPY 10 min chart

The day's rally lasted until midday, when the market topped at the gap-fill and started to decline, this time accelerated as US Republicans and Democrats traded barbs and publicly rejected each other's proposal. The drop continued for the rest of the session, with the SPX closing at 1337.43--more or less flat on the day.

Right now, the pattern on the daily SPX chart is the beginnings of bullish consolidation--a move up followed by several days of sideways trading within the range of the initial up-move. The longer we see sideways trading, the more likely that we eventually trade higher and approach the daily double top at 1370. This pattern confirms my suspicion that if a a debt resolution manages to pass the House and the Senate, the markets will rally as a sign of relief. And please note that the market does not care if it's a Republican or Democratic plan that passes, as long as this uncertainty comes to a timely end.

I have every confidence that a deal will pass by the deadline--to do otherwise without a contingency plan would be political suicide for all parties involved, not to mention the collateral damage to financial markets.

Going into the rest of the week, continue to follow the charts and consider news events only as a means of understanding the intraday whips of the market. We're still in an uptrend, though admittedly extended on the charts, and will remain so until we either hit resistance on the way up or break back to the downside. In the meantime, expect the whips and saws to continue until there is some sort of resolution.

Holiday Float Continues

This week's trading has been unfolding much as I outlined in several posts over the weekend. The slow, light volume holiday float up has continued. And while it's been a bit boring to watch, the gains to the long side have actually been fairly substantial.

If you follow me on twitter (@thetsxpert), you'll know that I was looking to pick up several long positions into this week. This included stocks like FTS.to, HSE.to, CNQ.to, IMO.to, ECA.to and SU.to, as well as commodities like oil and natural gas via the HOU.to and HNU.to 2x ETFs. I thought that since the markets were oversold and approaching a holiday period, picking up stocks long into key support levels would be a safe bet. My analysis also showed me that oil & gas were making bottoms, so I concentrated my picks in those areas.

Unfortunately, these stocks came within cents of my entry targets before taking off sharply to the upside--in most cases dollar plus gains so far. The only position I ended up getting filled on was HNU.to and ECA.to, both natural gas related. I'm very happy with their performance but of course I'd be much happier with more long exposure given the gains in the market.

But what the market giveth, it also taketh away. I'd probably be looking to take the gains off the table by now, or close to it. In fact, I was debating towards the end of today whether or not to take profits. I ended up holding as I think we may have a day or two more of upside, but I have breakeven stops in any case.

Both the TSX60 and the SPY are close to some major resistance levels, which you can read about here and here. My position is the same--if resistance levels are hit later this week or early next, I'll short them.

I also think there's a decent chance of going sideways tomorrow. The market appears to have priced in Greece's parliament voting in key austerity measures tomorrow morning. Therefore if the vote passes as expected, the market should hold on to its gains and do little else. Alternatively, a surprise impasse in the vote could weigh on the markets to the downside.

In any case, I'll be looking for trades on both the long and short side so that no matter what happens tomorrow I'll be ready to take advantage of it. I'll advise on my findings later tonight both here and on twitter.