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We go into the third-quarter US earnings season with both the US 500 and Wall Street cash about as neutral as you will find. A fresh catalyst is clearly needed and whether this comes from earnings or from some other market event is unclear, but a catalyst is missing and both indices are effectively just moving sideways.
If we focus on the US 500 cash we can see the upside is effectively capped at 2180, while good bids/support has been seen into the 2140 area (highlighted by the blue rectangle). Both the five- and twenty-day moving averages are headed perfectly sideways, while the nine-day relative strength index (RSI) is right on the 50 area. If we focus on market internals we can see 49% of companies are above their 50-day average, while 58% are above their 20-day average. Again, this is about as neutral as one will ever see.
Key trading levels on the US 500
Patience is often required in trading and that’s certainly the case now. Let the market push you into a trade. The playbook, in my opinion, is to go long US 500 on a close through 2180, and short through 2140, adding to short exposure on a close through the September lows and 38.2% retracement of the June to August of 2115.
I always like to start small and when the market proves that my analysis is correct I like to build on that.