The whipsaw action that first showed up on Monday has persisted throughout the week as Thursday is seeing SPX trade in its 3rd 13+ point range out of the last 4 days. Today’s low of 1,543 is just a hair below the 1,545 level I said would mark the lower channel that I expect to play out over the next few sessions. Getting hit especially hard today is the Dow Jones Transportation Index, which is on pace for its first 5 day losing streak since July 2012. I expect DJT to bounce tomorrow based on the losing streak having run its course but holding today’s low is a must if it hopes to avoid a showdown with key psychological support at 6,000.
With about an hour to go, the indexes are off their lows but still on track for their fourth red day in five session. Taking the brunt of the blow today are the finance and technology sectors. Especially notable is the action in GS which is on pace to close at its lowest level since January. In addition, GOOG, which has been the clear leader in tech this year, hasn’t yet made a meaningful bounce off of $810 support. GOOG needs to hurry up and get back above $820 to provide some tech stability, otherwise it is vulnerable to an $800 breakdown which would definitely weigh on tech and the market.
My main take away from today is the action in the VIX, which is up 6%. While a 6% gain is nothing to sneeze at for the VIX, it isn’t the crazy 12-18% type spikes we have seen occurring in one day some times recently, and to me that is a good sign for the bears. Why? Because the VIX has rallied too hard without the indexes actually breaking support, so at that point the VIX then becomes a catalyst for a bounce. At present though, closer to 1,538 with the VIX still below 15 is a good set up for if 1,538 were to break. In that event you’d see the VIX moving above 15 at that time in my opinion, which would actually be a better scenario in terms of then expecting more downside thereafter.
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