Bulls were lethargic all of last week, and Friday was more of the same, states Jon Markman, editor of Strategic Advantage.
The S&P 500 (SPX) closed down 0.7%, to 3,934. The benchmark index lost 3.4% for the week, negating all of the gains from the previous week. The weakness puts the standard bearer well below the 20-day moving average at 3,960, leaving bulls vulnerable to a more serious decline.
The headline on Friday was a stronger-than-expected producer price index report, yet that does not explain the weakness. Bulls spent all of Friday bailing out of the year’s best-performing stock groups. Energy stocks were slammed Friday, and healthcare issues followed later in the session.
It’s noteworthy that the SPDR Energy (XLE) exchange-traded fund skidded 8.5% for the week, a decline 2.5x worse than the broad market. I don’t want to be an alarmist, especially given bullish seasonal factors, however, aggressive selling in leadership groups is never a positive development.
There is a gap in the S&P 500 chart at 3,818. The bulls may be conceding that decline before they regroup. Resistance is 3,960.
The Trade: The current position is the WisdomTree Bloomberg Floating Rate Treasury ETF (USFR), a cash alternative.
Place an order to buy the ProShares Ultra Short S&P 500 (SDS) at $43.30. This exchange-traded fund delivers 2x the inverse daily performance of the S&P 500. Once filled, place a new order to sell half of the position at $45.95, and a half at $47.30. Also, set a stop loss order at $41.90. If this trade works, the potential upside target is +7.7% and the potential downside risk is -3.2%.
