The importance of 1,640 has been evident 2 weeks in a row, last week to the downside and this week to the upside. SPX started the week out about this level on Tuesday but then fell below it throughout that day, only to then recover and close just shy of this mark going into Wednesday. Then on Wednesday, a move above 1,640 right at the open sparked upside momentum, and the result has been a near 1% move higher in the last 2 days. Now we have the jobs report coming out tomorrow. I have no clue what the number will be or how the market will react. What I do know is I’ve found a level that I believe will guide my long/short trade just as well as 1,640 has: 1,648.50.
1,648.50 may come off as an obscure number, and for simplicity sake you could just focus on the 1,648-1,650 range for an over/under (long/short) set up, but 1,648.50 is significant because it is the midpoint of last weeks range. To me, holding above last weeks midpoint hints at further upside to this rally off of 1,627 and increases the likelihood that last weeks low represents a major bottom on the way to new all time highs. Below 1,648.50 and the focus would again on be on 1,640, with some soft support between 1,644-1,646 as that is an area of price congestion since last Thursday.
Speaking of midpoints, coming into the week I said to watch how the VIX reacted around its midpoint from last week, which is 15.85. I don’t find it a coincidence that going into a key data point the VIX is perched within a hair of this midpoint (15.77 vs 15.85 or 0.005%). The market is at an inflection point here and I’m expecting tomorrow to reveal the next direction. I had been net bearish on this market but now I am neutral, as this rally above 1,640 has exceeded my expectations and thrown a wrench in my bearish thesis for the moment.
I’m waiting for a close either back above 1,660 or back below 1,640 to shift from neutral to either bullish or bearish. Obviously I hope that tomorrow gives me a reason to shift one way or the other but if it doesn’t I am content to play stock picker and wait for the markets next move. Names like LNKD, TSLA, NFLX can keep rallying if the market isn’t breaking down. I’d expect the banks and big cap tech like GOOG & AAPL to be especially sensitive to the markets next direction. While SPX price action tells me to be neutral here, my gut feeling is that I should remain bearish since IWM, MDY, & XLF all today failed to rise above their 8/26 low.
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