The line has been drawn and it lies at 1,295. That was Friday’s close and a whisker below today’s low. 1,295 is a level that also has important technical significance as we wrote on Monday:
“1,295 (or thereabouts) provided support for SPX on three different occasions in 2011, in February, April, and July. Then the level acted as resistance in late October when SPX was bouncing vigorously from its 1,074 October 4th low. Our natural inclination is that this is a technical level that would make sense for a bounce to occur.”
-SH @ the bell 5/21/12: Still looking for a bounce
Well after Monday and today that’s 2 more occasions where a bounce occurred from 1,295 giving more credence to its importance.
There were some early signs that the sell off that started this morning wasn’t going to end as badly as it appeared. For starters, the VIX, while it did initially move higher by 7%, failed to break above its high from Friday. In fact, around 1:00, the VIX actually broke to 2 hour low, without the S&P500 having advanced to a 2 hour high. Our knowledge of the inverse correlation that exists between the VIX and SPX clued us in then that a further bounce in SPX might be in order. By the end of the day the VIX had given up all of its gains and closed red, meaning it has now closed lower 2 out of 3 days for the first time this month.
In addition, a couple of key stocks in key sectors gave subtle clues of strength as well. J.P Morgan (JPM), while lower in the morning, never broke below its low from yesterday, even as the broader indexes did. The same goes for AAPL, which fell at the open but remained above yesterday’s low. Both of these stocks went on to finish in the green and their leadership within their respective sectors was obvious, especially in JPM’s case. Bank stocks like WFC, GS, & MS all put in new low of days after JPM was busy working on a key intraday higher low, then all 3 rallied sharply as if to catch up to JPM’s gains.
With today bringing on the second successful test of the 1,290-1,295 range many will likely be feeling pretty good that a tradable bottom is in place. We caution taking on this view though as we still aren’t seeing evidence of what has typically marked a true bottom (we’ll get into that @ the bell tomorrow).
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