The bounce that started off of the 1,296 low yesterday seemed to come to an end today as the markets fell shy of their weekly highs. Many traders seemed to use the bounce as an opportunity to short using Tuesday’s 1,328 high as a stop loss. Frankly, we can’t blame them, with SPX touching 1,324 the better risk/reward scenario was in favor of the bears. What’s nice is a new, tight range has been established, from 1,300 on the low end to 1,325ish on the high end. The next major directional move won’t happen until a break down below or break out above either of those levels.
One of the reasons today’s rally was capped and faded likely has to do with the action in oil, which still can’t seem to get out of its own way. The good news is that USO put in a higher low and higher high vs yesterday for the second time in four days and that hasn’t happened once this month. Even so, until we see oil really ramp up and have one of those bottom reversal type days, where it’s up 3-5% of so, we are to believe the trend is lower. That doesn’t mean there can’t be a further bounce, but even with a continued broader market bounce, there are many resistance levels overhead that would need to be cleared in order to confirm a bottom.
Late day action in the VIX though does suggest there could be a test of Monday’s 1,328 high coming. For the first time since 4/24 the VIX closed at its low of the day. In addition, it also went below its prior days low while closing red for the first time since 5/1. Moreover, for the second day in a row the markets have staged a rally in the last 30 minutes of trading suggesting there might be some upward momentum building here.
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