On February 29th, the S&P500 gave a short signal. We pointed it out in our @ the bell post for March 1st. Then the following day, we provided a few key reasons as to why the short term backdrop was looking more and more bearish. After the destruction today we’re confident that our analysis is focused on the right indicators.
So while the financial headlines will read that today’s down move is because of renewed fears in Europe, we stress the importance of following the technicals. After all, it was the technical action in a few key indicators that told us this was coming. Here is what we’re talking about:
Oil, as represented by USO, snapped a 3 week winning streak. Moreover, USO traded lower on a weekly basis on the highest volume it has seen since the week beginning August 8th, 2011. The VIX put in a higher high and higher low on a weekly basis this week for the first time since the week beginning November 11th, 2011. On a net net basis we would consider these two technical events short term bearish. Furthermore, with SPX failing to break above yesterday’s high of 1,376, the short signal given Wednesday is still in tact.
-@ the close 3/2/12
For more evidence that a pullback could be among us take a look at the action in FCX. As the biggest copper miner in the world, FCX can be a good “macro” indicator of sorts for the market. Today, FCX closed at its lowest level since 1/11/12.
-@ the close 3/2/12
In regards to the short signal generated last Wednesday we noted the following, as up until this latest signal, the other 2 prior signals this year had been negated the next day:
There is one distinct difference between Wednesday’s signal vs. the other 2… it came on the same day SPX had broken the previous days high. Said another way, the market was actually breaking out and pointing to further upside before a mid day reversal led to a breakdown. We feel that this adds more credence to the signal. The psychological effects behind such a reversal can have bearish implications.
-@ the bell 3/1/12
Given that the recently strong trends in gold and silver came to a sudden halt (both suffered big losses of at least 4% Wednesday), we suspect that SPX could be headed lower. The U.S. dollar also posted a solid gain after it has been downtrending for the last month and a half. While the dollar’s downtrend remains in tact, it does appear positioned for more upside in the immediate term. The same could be said of the VIX. Let’s see if SPX can notch a close back above 1,370 before we start looking towards 1,400, otherwise a move to 1,350 and possibly below could be in the cards.
-@ the bell 3/1/12
We know we may be coming off as redundant here but we’re simply trying to point out that if you are observant of action in things like the VIX, dollar, oil, gold, silver, copper, etc.. you can anticipate these moves before they happen. So just like all of the aforementioned gave signals bearish signals before today, we’re now going to be watching for bullish signals before the end of this move lower. Bullish signals while the down move is still happening could be a sign that the move lower is nearing its end.
What to watch for:
- The VIX, does it stay above or move back below 20?
- Does USO find support between $38-$40?
- Can UUP break above resistance in the $22.30-$22.50 range?
- Does FCX maintain key support in the $36.70-$38 range?
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