On March 1st, when the S&P500 index was trading at around 1,520s, we wrote that the short-term market trend would turn to bullish even though the S&P500 index is within the 2-3% distance from its all time high. Parallel to our expectations, the market has tested its all time highs despite the deteriorating sentiment related to the developments in Cyprus and Italy. While the S&P500 is floating at 1,560s nowadays, our arbitrage model now signals bearish trend for the coming week:

• Our statistical arbitrage model now recommends “sell”. Our Arbitrage Trader model algorithm is now signaling a bearish trend in the indices for the coming 7-8 trading days. The equity markets even in Germany, France, and the UK took major hits in the recent week and the latest macro-economic data from the US stayed below expectations. As a result of Cyprus and Italy, EUR/USD broke down its 200-day moving average and it’s trading around 1.2800. As a consequence, we believe that the S&P500 index will find it difficult to move another upward leg before it faces a small correction.
• Technically, for the S&P500 index, 1,530 will be an interim resistance. However, we believe that we may see another testing of the 1,500 level in the market. For aggressive short positions 1,578 may be used as a stop-loss level. Even though markets do not expect the selling pressure arriving before April or the quarter end, we think that starting from today (March 28th) we may see a correction in the market.

In short, we now have a bearish view on the generic market for the coming week and recommend our clients to sell into strength.

The short-term statistical arbitrage model that we use to generate these buy/sell market signals is the same model that we use to power Stock Arbitrage Trader for the iPhone & iPad to generate buy/sell signals for specific stocks. Click here to learn more or download now!