The markets finished lower today with the NASDAQ, Russell 2000, and Midcap 400 pacing the move south. From a technical perspective, today was really much ado about nothing in terms of the S&P500. SPX still is below its Spring 2011 highs around 1,370 but above 1,350. 1,350 is important because it is a previous resistance level and if it can become support now that would be a very bullish sign.
In the U.S. existing home sales rose 4.3% in January, hitting their highest level in 1&1/2 years. The data was taken with a grain of salt though as those same sales figures for December were revised down to 4.38 million-units from the previously reported 4.61 million-units. In China, the manufacturing sector contracted for the fourth straight month. The bears will need to see alot more reports like the ladder in to really see the market get nervous about the economy, both at home and abroad.
The best reason to remain bullish on the overall trend market continues to be the action in the VIX. We have outlined in clear detail on numerous occasions the inverse relationship that exists between SPX & the VIX. If anything with the market up 25% so far since October you would think people are positioning for a pullback. What would clue us off to such positioning would be spikes in the VIX on days like today. However, we didn’t see it. The VIX barely rose over 2% and even by the time the day was out.
The VIX hasn’t rallied 4 days in a row since 12/2/11-12/9/12. Meanwhile SPX has managed to accomplish the same feat on 4 such occasions. If you look at other trends like up 3 out of the last 4 days, or down 3 days in a row then the price action in SPX vs the VIX becomes even more apparent. Bottom-line, until we see the VIX put together a sustained rally then there is no reason to doubt the strength of this uptrend.
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