Is it Safe?

ES precisely tagged its SMA50 at 3212.75 on Friday. Recall that the SMA50 has been our preferred downside target since ES tagged our preferred upside target on Jan 22  – representing the intersection of the rising white channel .236 line and the top of the rising purple channel it broke out of on Dec 12.

Because the tag was delayed (think Trading Places, but managed by computers) ES only managed to backtest the SMA50 — not the purple channel top, now at 3202.  SPX didn’t even tag its SMA50. This might ordinarily imply that further downside is in store.

But, the SMA50 has since moved up to 3215.10, which would require a drop below the SMA50. It would also mean the SMA10 dropping below the SMA20 for the first time since Oct 1.  This would send a quite bearish signal to investors the machines.

Recall that it was the bearish 10/20 cross on that day that led to a 131-pt drop and the hurried announcement of Phase 1 of the US-China trade deal. The Phase 1 announcement, in turn, led to a bullish 10/20 cross a few days later and completion of the inverted H&S Pattern on Nov 1.

Futures are up about 15 points this morning, begging the question: “Is it safe?”

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