Bears Getting Ready To Close Trap Bulls Have Walked Into

I’m sorry it has to be this way, folks, I really am. But it looks like the bears have set the trap. The bulls have wandered in. And now, there’s only one thing left: for the bears to have their lunch, and for the bulls to meet their fate.

Fundamentally we know the story: unemployment and low retail sales are all the talk. And while the January effect coupled with inflationary stimulus packages may have helped the market engineer a bit of a rally, the economic woes are still clearly in place, and it looks as though the primary trends are preparing to resume themselves. For instance, at the time of this writing, S&P 500 futures are pointing to a fifth loss in a row.

Technically we see a nice potential trade lining up on SPY (SPY), particularly if SPY can break support at 85.43. The market is now trading below the 5, 10, 20, and 50 simple moving averages, all of which are converging — another indication the bear market rally may be concluding. A break below 85.43 could pave the way for a retest of previous lows at 75.

Check the chart below.

A lower S&P 500 (^GSPC) is also generally correlated to a stronger yen. We have seen the yen begin to rally again, as the USD/JPY exchange rate has broken below 90. The chart below plots the USD/JPY (blue and gray candles) against the SPY (red and green candles). In sum, a resumption of the bear trend in the S&P would be a bearish sign for USD/JPY, which stock market traders can take advantage of via the CurrencyShares Japanese Yen Trust ETF (FXY).

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