The S&P500 was unable to avoid its largest weekly drop of 2012 as surging yields in Spain again came back into focus. Our familiar inverse correlation between the VIX and SPX played out all week long as the VIX settled at its highest weekly closing level since the first week in February. In addition, the dollar pushed higher Friday but did fail to tack onto its gains from last week. Even in the face of the bearish price action to close out the week, we’re standing by our call that the bottom is in (based on extremely negative sentiment), but we will introduce some potentially bearish headwinds that we’re watching closely.
Copper, or “Dr. Copper” as it is referred to as it is considered a barometer for global economic growth, suffered a bad breakdown to a two month low this week. The last time copper broke down like this was in the Summer. That breakdown and subsequent downtrend preceded and aided to overall market weakness. The risk is that if copper fails to hold support in the $3.60-$3.65 range we could see a similar pattern repeat itself.
Lastly, did you notice the closing price on SPX today?
Moving forward, watch the 1,370 level in the S&P500, if we stay above it on any pullbacks in the coming days then we will maintain our bullish outlook.
-Yesterday’s @ the close commentary
Well SPX closed exactly on that 1,370 level and in our view that adds credence to our belief of just how important it is. This is a pretty good trading scenario because we don’t have wait to find out if we are going to break below it or bounce off of it. Our answer will be revealed Monday.
We’d like to believe that the market is just experiencing turbulence right now and working out the kinks from the oversold bounce – the captain turned on the fasten-seat belt sign today if you will – but again, our focus is on 1,370. If we stay above it we expect the VIX to move lower, otherwise the VIX could surge back above 20 and our contrarian bullish sentiment backdrop will go for naught, at least in the immediate term.
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