Nimbly Trading The S&P Next Week

The markets in general had a spectacular run this week. The major U.S. indices are extremely overbought according to RSI(2). However, that doesn't mean one should load their portfolio with puts or uber-short ETFs, take a week off, and then sell 'em for substantial profit. It's not quite such a sure thing...




I wrote the following on the above chart, but it's the key takeaway, so it's worth reiterating: Where will the S&P go from here? The previous three extreme RSI(2) events give us three possibilities: 1. S&P goes down; 2. S&P goes up; or 3. S&P goes sideways.

Let's take a step back, filter out some of the noise, and note the general S&P trends:




The market trend is still sideways, with the price action soon to bump into some nice overhead price resistance.

I'm holding nimble short positions right now, meaning I'm looking for some profit-taking opportunities if the market decides to become less overbought next week, but I'm ready to dump my shorts quickly if the S&P convincingly breaches the ~950-955 overhead resistance level. That would mean that sideways trend F is giving way to upward trend G.