Long Equity Profit Getting Banked

The three main global equity indices are showing weakness on the last two trading sessions of the week, as the impact of regional civil unrest starts to finally hit stock valuations that no longer have the safety net of earnings season headlines to support the moves to break resistance. As has been noted in recent client notes, the Nikkei, DAX, and S&P 500 equity futures markets are trading in a tight range, around their 20 and 50-day simple moving average areas. After a sustained sideways crawl during the course of the last month of trade, traders are now starting to see the semblance of a short trend forming, which will be confirmed by weekly closes on Friday below pivotal price point areas.

The Japanese Nikkei mid-term charts resemble a roller coaster ride that will be looking to hold 10350 as support by the end of the week. The German DAX has wound itself into a very tight consolidation pattern over the course of the last two weeks of trade and has now broken below near-term support at 7100. A weekly close below 7050 will indicate technically that the short sided moves may have strong potential to follow through, and test 6900. S&P 500 futures trade is managing to hold the 1298 price point area that has seen dips being bought in recent trade. However, a close below 1295 at the end of this week could easily instigate a test of 1275, and ultimately a break below 1250.

Over the course of the last three years equity markets have absorbed Black Swan events that really have no peers in regard to the amount and consistent flow of headline news breaking new economic and civil ground. Global traded markets are more inter-connected than ever before, and are more reactive to sound-bite headlines than at any other period of time, which is leading to very reactive intra-day swings as one region opens and another closes.

In general, it would seem that the path of least resistance would be for the equity indices to lose ground, and at very best to hold support over the course of the next week of trade. It looks unlikely that there will be enough global momentum to break upside resistance at yearly highs. The real question will be at what point will the last seven months of equity profit get banked, especially now that news is seeping through via jawboning from Federal Reserve members intimating that the quantitative easing program will not be extended past June 2011. At that point equity markets would likely reverse the synthetic moves higher.

Now may be the time that long positions are closed, profit banked, and unlike recent trade, a new short position is taken instead of waiting to buy the dip. Global equity indices are at an inflection point and great care should be taken in managing open long positions looking for a continuation of the last six months of trade.

The Sentiment and Momentum Indicator alert sent out on S&P 500 futures trade to be short at 1301, hit the first target of 1298. The second target of 1295 is now in sight, and it looks to be inevitable that another break lower would have the momentum to easily hit it.


Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.