Yesterday the importance of 2940 for the S&P 500 was discussed. With volatility expansions taking place off numerous historically relevant resistance areas, the last thing investors want to see out of the market is a thrust on the downside, with markets closing at the weekly lows. In what may be a date with destiny, however, this may be exactly what the markets get as we enter August trading.
For visualization purposes, here is the 5 minute chart of the S&P 500 today. The market opened right on the 2940 level (white line). When it lost that level, it responded by throwing a tantrum of volatility on the downside. This is otherwise known as a recognition point. It's the market embracing the fact that something of consequence from a price perspective took place. For investors who choose to listen to what the market is saying, it serves as a valuable glimpse into the mind of the market at that moment.
This recognition of the 2940 level, along with numerous instances of volatility expansion across market averages is something to run from, not embrace. From a seasonal perspective to a technical perspective, everything is coming together for a market where risk/reward dynamics of taking on risk laden positions simply doesn't add up.
Have been arguing for conservative beta exposure here for some weeks now. Add gold names to that mix, as well. There are simply so few avenues for a sustained decline in precious metals from here. It's a must have portfolio position that a majority of the developed financial world is underexposed to at present.
August is set to be perilous. Behave accordingly.
