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Stockhaven’s Market Take 1/8/13

The markets experienced their first 2 day losing streak of the year and SPY traded below its lows of the previous 3 days before finishing slightly lower, but above the $145.43 level I said was key back in my 1/3 market take. The pullback though continues to occur on low volume, and above 1,450 in SPX, leaving the S&P500 within striking distance of 1,475. While I consider these last 2 days nothing more than consolidation, it is bearish that we got a lower low and lower high 2 days in a row.

 Stockhavens Market Take 1/8/13

  • Does the gap fill? — SPY is still holding onto its New Years gap gains, with the low from 1/2 at $144.73 not yet having been tested
  • Mixed bag from the banks — JPM, C, & WFC all managed to close near highs, while GS & BAC had no such luck
  • VIX still can’t bounce — I figured we’d see a move higher in the VIX if we came back near 1,450 but that hasn’t been the case

SPY managed to close ($145.55) above the mid point of 1/2 (mid point is at $145.44) but not by much. The bullish gap up on that day is still holding as SPY has not yet pierced below the 1/2 low of $144.73. However, should SPY experience another day like today, where it trades below the midpoint on down towards $145, more and more traders will start positioning for a gap fill down towards $142.50. This would likely translate to a move towards 1,430-1,400 in SPX which would make sense given that that range was around the area of the December highs.

XLF continues to churn as it trades just below the $17-$17.20 resistance zone, but we’re starting to see some banks trade better than others. JPM, C, & WFC for instance, all managed to shake off early weakness and finish near their highs for the day, something BAC and GS were unable to accomplish. This discrepancy among the major banks, albeit a small one (BAC & GS were down less than 1%) is an early sign of waning momentum. Combine that price action with the fact XLF is at resistance in the aforementioned range, and the banks look to me like they are setting up for a pullback. XLF will need to make a distinguished move above $17 to change my immediate outlook.

I assumed if SPX moved back towards 1,450 that the VIX would move back towards 15-16, but that hasn’t been the case. Instead, the VIX has experienced 3 consecutive closes below 14 for the first time since 2007. The VIX is acting like it wants to trade down towards some of those same 2007 levels near 10. If the VIX doesn’t move down there though, then the current set up is not constructive for the VIX.

As readers of my blog know, an elevated VIX opens the door for greater potential upside, which is why I said I wanted to see the VIX creep back near 15-16 if SPX was going to move back towards 1,450. Since we haven’t seen that move up in the VIX though, it may come if SPX moves towards 1,475. The thinking here is that traders will look for a hedge on a move to new 5 year highs and the current levels in the VIX could provide just that.

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