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Stockhaven’s market take 1/1/13

After a huge day Monday I’m very curious to see if the market can show follow thru. I’ve got my eye on this 1,420-1,430 range in the S&P500. To me if this rally is to be trusted we shouldn’t see a move back below 1,420ish. On the other side, a follow thru rally that breaks 1,430 right at the open should be considered bullish and opens the door for a big move towards 1,450.

  • Volatility bulls got burned — After pushing the VIX up 40% during the month of December without getting more than a 1% down move in the indexes, bears got absolutely smoked on Monday
  • AAPL bounces with vigor — AAPL had its best day in over a month on Monday and now looks to have a solid base in place between $505-$515
  • XLF establishes support — The banks took one day to make up the losses that it took them 5 days to make, certainly a bullish signal if you ask me

Going into Monday I talked about the fact that it might not be wise for the bears to be running up volatility as measured by the VIX so much. Sure the concern regarding the fiscal cliff is valid, but the market wasn’t confirming the bearish tone that the VIX seemed to be hinting at. As a result, we got a huge snap back rally as the VIX plummeted more than 20% Friday. I’ll be interested to see if we see a continued erosion in the VIX or if it can establish a support level here near 18 as that would be a higher low and set up a potentially bearish outlook a few weeks out.

AAPL clearly showed that it is the most fiscal cliff chatter sensitive as it seemed to benefit the most from a the positive rhetoric heading into the deadline. With a resolution, I see no reason AAPL shouldn’t continue to rally towards $550. However, should AAPL fall back below $530 and then $525 that’d be a very terrible sign for the stock and the market in general in my view. If $525 falls then buyers who absorbed shares over the last few weeks above $500 will certainly be worried that they didn’t get in at the bottom, as currently looks to be the case.

Banks, banks, and more banks. They’re doing a great job carrying this market while other leading sectors like consumer discretionary and technology traded in sideways channels throughout December. Support has been established around $16.20 so staying above it keeps my bias bullish. Above $16.50 and I suspect we see the market pressing back towards multi year highs near 1,475 on SPX.

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