Who Will Take Over – Bulls or Bears?

Rally Tuesday? Well that seems to be over for now. This market continues to be very yen driven, and overseas news Monday night out of Japan drove the yen higher, which pushed down our beloved stock market.  The real question is, “Can the US market shake off that news and rally onward?” My concerns with this market on the upside are the yen and bonds.  We know the story on the yen futures (if they bottom and start to rally in earnest, look for stocks to take a nice break from any meaningful rallies).  The yen breaking out is a very bad thing for bulls. There is no two ways about it. The 1.0450 level is a big one, and the initial slam into this level met with selling. For today the stock market will be very simple. If the yen holds on this pullback and bounces, taking out the June 7th high, this stock market is going to get beat like a red-headed step child with an attitude.  If the yen can quiet down and ease back then stocks can muster up a rally.  It’s really being that dictated by the yen right now.

With bonds, the question is, “Are bonds and stocks coupled or decoupled?”  That is, for a while stocks and bonds were coupled, rallying together, climbing the same mountain, taking in the same clear views. Bonds have obviously stopped rallying. Is this or is this not a game changer? That’s the question, and we should know the answer by the end of the trading day on Wednesday. If stocks can recover from Tuesday’s sell off and they close nicely positive today (ideally above 1650) then we are off and running to test the highs. 1635 on the ES continues to be a key level. We broke through it earlier yesterday on what was a very impressive rally off the lows. If the yen quiets down, and bulls manage to push stocks back up through 1635, then we are going to hit 1642 very quickly.  On the downside, 1620 is the key level. If that gets taken out, then it will get very ugly, very quickly.

This is admittedly a tough one to call. I’ve found in 2013 it’s been better giving bulls the benefit of the doubt, and I will extend them that courtesy here . . . while keeping one eye on the yen.  Look for bulls to give it the college try into the close. If, on the other hand, stocks crack, there is some serious downside looming.  What to do?  When markets are in “decision mode” as they will be for the next two days, long straddles can be utilized.  That said, this is also a time when you want to keep your gun loaded.  Don’t waste too many bullets chasing this thing back and forth.  The next move will present itself, most likely this week.  Just kick back, lean up against a tree, and keep your gun loaded.

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John Carter

simpleroptions.com

John is a Commodity Trading Advisor with Razor Trading. McGraw Hill commissioned him to write a book entitled Mastering the Trade, which was released in January 2006. Carter has also been featured on ABC Money. He and Hubert Senters founded and run the Trade the Markets web site.