Day 2 of the sell off that attempted to start yesterday appears to be underway as the indexes are again under pressure. I say attempt because the indexes finished well off the lows, and were at the break even line at one point. XLF is working on a super ugly candle with C & GS leading the way lower among the big banks, followed closely by JPM. In fact, when XLF broke lower @ 11:40 am est is precisely the same time things turned ugly for SPY, hinting that traders should continue to watch XLF as a leading indicator.
- Focus on 1,538 — 1,538 was the post breakout low in the S&P500 from 3/6 so that is a key level to hold if SPX is to avoid a trip down to 1,520-1,530
- VIX 15 — The VIX broke yesterday’s high shortly after XLF broke lower and is now testing its highest level on a green day all of this month (note VIX traded higher in early March but not on a positive closing basis)
- GLD at key level — In the midst of all the drama the last 2 days, GLD has benefited and is currently testing key resistance between $156-$157
If you look at when SPX finally pushed above 1,530 it was on March 5th when it hit a high of 1,543 and closed at 1,539. The next day SPX put in a low of 1,538 before closing higher 4 consecutive days in a row. Therefore I’m focused on that 1,538 support level now. If that level breaks, the failure to break 1,565 last week is going to look very double toppish to a lot of traders. I would expect the bears to definitely lean in on a 1,538 break and challenge support at 1,520-1,530.
The VIX just rocketed above 15 as I was typing this and that is a very important level as it has sparked the February 25th sell off and also the bounce that quickly ensued. The VIX has never been able to hold 15 on back to back positive days this month so if you see a +15 close today and another green close above it tomorrow then that’s a definite warning sign. If you don’t though, you’re probably best served using this dip as opportunity to go long.
Speaking of going long, GLD has been a long trade that is working recently. In fact, GLD is up 7 out of the last 8 days, and 9 out of the last 11. Even with the recent rally though GLD is still down over 3% year-to-date. Taking a quick glance at a daily chart shows 2 tops in the $156-$157 range since the middle of February, and being that that is where it is testing now it needs to keep pushing higher. If GLD gets rejected at this range, a triple top will be in place and the likely hood of a move back down towards $150 increases. To me, if GLD has a bottom in place, there is no reason for it go below this weeks low of $155. I am targeting GLD for a move to $162 in the next 1-2 weeks so long as it continues to hold $155.
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