The new week didn’t bring any different results, markets continued their trend higher. Important today was that all the major indexes broke above their highs from last week causing “higher highs” to be put in place. Technical traders look for higher highs to signal continuation of current trends. The S&P500 has now tagged a higher high 5 days in a row.
In stock specific news, AAPL bullied its way past the $600 mark as it picked up right where it left off last week: rampaging to new all time highs. Joining the fun was PCLN which nearly pushed passed the $700 level. Both of these tech titans are up more 60% on the year and have been the clear leaders for the NASDAQ, which is the only major index at 10 year highs. Continue to watch AAPL & PCLN and take your cues from them. At some point they will need to consolidate these gains and when they do, that is when we could see similar consolidation take hold in the markets.
We also talked about the VIX this morning and how with it at such low prices, we may not see the familiar inverse correlation between itself and SPX play out. So far this is true as the VIX was up 4% but SPX still managed to add on 0.4% itself for a very modest gain. We actually view the rise in the VIX from these levels as a positive because it will allow for a greater move to the upside to happen.
Remember, volatility works in both directions. Think back to August and September when we were having all of those 200-400 point down days, it was with the VIX above 30. The other side of that was the ability for the market to have 200-400 point up days, because volatility was so extreme. That is an example of volatility working in both directions.
Have you been missing those wild up days? Well when the VIX is near levels like it is now, they just don’t happen. So if the VIX can rally a little (but not past 20 because that would be bad news for the bulls in our opinion), then that’ll open up the door for greater advances in the indexes when the VIX pulls back.
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- SH @ the close 1/30/12: Understanding price congestion
- SH @ the close 9/1/2011: Markets close lower ahead of Friday’s jobs report
- SH @ the close 11/7/2011: Markets shrug off early weakness, close higher
- SH @ close 12/23/2011: SPX notches close over 200 day sma
- SH @ the close 2/7/12: Indexes continue to consolidate; gold/silver rally