Macro Wrap – We’re Not the Only Ones Watching Technicals, $SPY, $SPX

by Enis June 14, 2013 7:59 am • Commentary

The first trading desk I ever spent time on was the FX trading desk at Merrill Lynch in New York.  The currency markets are the largest in the world, but they are also the least regulated.  It’s the wild west of the financial markets, with the biggest players (meaning governments and banks) dominating the market’s moves.  One look at this week’s currency fixing scandal should clear any notion of a fair, orderly market.

But what I found most interesting about the currency traders was their reliance on technical analysis.  Though many of them were well versed in the various fundamental drivers of their respective currencies (most of them focused on only one or two major currency crosses, with the derivatives traders spread a bit more thin), their trading strategy was much more driven by technical factors.  They were much more interested in price levels, market positioning, and where the stops were located than any day to day political, economic, or financial news.

That’s because their time frame was quite short.  Rarely more than a few weeks.  In that context, technicals matter much more than fundamentals.  The past few weeks in the SPX index have a similar feel.  Prices in the stock market are moving much more rapidly, and respecting technical levels of support and resistance quite well.  Traders are keying off those levels for entries and exits.

For the short-term, the obvious support for the SPX is the 50 day ma (now around 1612).  The resistance is around the 20 day ma (now around 1643).  We’re stuck between those two levels for now.  So as traders all set their mental or actual buy stops above 1650 and below 1600, prepare in advance.

Most of the headlines explaining the back and forth moves are superfluous.  In fact, the prices are moving so fast that the journalists have to change the article from the morning to the afternoon.  Watch price levels instead, like my FX mentors of old.