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Should you short SPX on Monday upon a GREXIT?

I wouldn’t be so fast jumping the gun and short this market. Futures reacted very negatively on the Greek referendum announced by an irresponsible socialist government. Not only Greeks cannot afford the referendum, the whole EU cannot afford losses from Greeks.

Although Greece is posting a nice drama (or tragic comedy actually) I believe all selling actually already happened. All action has been already done. Jumping in now is too late.

Here is how futures responded right after opening:

SPX

Jumping in now and shorting this market maybe too late. Maybe not, we may see more irrationality coming in and more investors selling like crazy when markets open tomorrow morning.

But I do not expect it.

 

 

If the markets open at the current level which is 2075, then it will be a huge gap down and it will open right at the 1 standard deviation level. Statistically we will be too oversold, too low, and bound for recovery.

See the chart below:

SPX

If you put the chart into a perspective, it would open where the red dot is shown. If so, that lays directly at the 1 standard deviation line (the magenta colored line). Can we go any further down? Although everything is possible, I don’t think there is much room for further downside.

Yes we can go lower to 2 SD, but that would be very unlikely. I do not think Greece poses such a threat to global markets. Although in today’s market driven by algos and freaks everything is possible.

I would incline to a price recovery rather than to more selling. The market will try to close the gap and run away from the 1 SD level.

That doesn’t mean that if the market rallies from the low open price we will be saved, respectively the trend will be saved! We may just see a new lower high forming and then more decline. Or we may see a huge V shape recovery and new highs. Everything is possible with this crazy market.

Stay cool and do not panic. It’s not worth it.
 
 





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