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Stockhaven’s market take 12/4/12

Last night I had this to say about the current state of the market:

“I get the sense traders feel like the market wants to make a big move here. I don’t necessarily see that happening though. At 1,409 SPX is at an area that it consolidated around last time it was here.”
-Stockhaven’s market take 12/3/12 

Today SPX continued its consolidation above 1,400, leaving many talking heads with nothing to talk about. I’ve managed to find a few things worth noting though.

  • The VIX was higher today for a 3rd day in a row, its first 3 day winning streak since August
  • The VIX has risen from 15.06 to 17.12 (13.5%) over the same period that SPX has fallen from 1,415 to 1,407 (-0.005%)
  • AAPL suffered its biggest one day drop since before it bottomed @ $505.75

The VIX is what intrigues me most about the market. Usually with a 13% rise in the VIX, I would’ve expected much greater volatility to be taking place. That has not been the case these last 3 days. Sure there has been some see-saw action back and forth, but were still above 1,400 and still below 1,420. Basically the action in SPX says there’s much ado about nothing, but the VIX is signaling otherwise.

To me the VIX is signaling that there is a pretty good sized move on the horizon. While yesterday I said that many traders seem to be looking for a big move that I don’t think is coming, I’m changing that tune a little bit now due to the VIX moving above the 17 level. Best of all, traders are surely frustrated that a decent move hasn’t happened yet, 2 days into the week, so now I think they can get caught off guard a little bit.

The good thing about the rise in the VIX though is it paves the way for a big move in both directions. Above 17, a fall back towards 15 will likely see SPX surging above 1,420. Vise versa, should 1,400 crack, look for the VIX to gain even more momentum and create somewhat of a self-fulfilling move lower for equities as the downward volatility feeds on itself. Should the VIX erode on its own, without much of a move by SPX, then I’ll again just continue to look for consolidation between 1,400-1,420.

If the action in AAPL is a leading indicator though, the daily ranges on SPX should widen back up as early as Wednesday. AAPL gapped down $4 and was down $13+ at its low. This could be ‘sell off #2′ starting for AAPL and you should note that it was the same day AAPL bottomed that the market bottomed. Watch $570-$572, if that level breaks, low $560′s are coming and SPX might move below 1,400 with it. Worth noting though is that AAPL was able to sell off Tuesday at the open without SPY or QQQ doing the same.

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