The S&P500 is going on day 3 traveling above 1,500 with 2 closes in a row above it. The main technical event I noticed of the last few days is the action that followed the SPY candle from 1/24. Unlike the action that followed a similar candle from 9/14/12 & 10/18/12, SPY didn’t go below the 1/24 low the following trading day. However, we haven’t moved emphatically above the top end of that candle either as the highs of the last 3 days are all within a point of each other. In my view, this has everything to do with the action (or lack there of) in QQQ.
- VIX notches best close since 1/9 — This seems foolish to me, VIX closing at a level it was last at when SPX was at 1,460
- QQQ stays to the side — The sideways channel has been clearly established, now its just a waiting game
What was the worst trade of 2012? Holding VIX calls. The VIX closed 2011 at 23.40 and spent a grand total of 2 weeks (on a closing basis) above this level all of 2012 working its a way to a 23% decline for that year. Already this year the VIX is down 24% from its 18.02 closing price of 2012, yet traders seem to once again have an appetite for the VIX. Notice that the VIX closed at its best level today since 1/9, yet on that day SPX was at 1,460. Historically, SPX should move inversely to the VIX, so we should have seen a pullback from 1,500 based on the VIX’s rise over the last 3 days.
I’ve been calling the current level in the SPX a good sell zone over the last week or so, with the expectation that it would hit 1,500. The 1,500 target has hit, but this rise in the VIX is now setting the stage for a further rally, as an erosion in volatility will aid SPX in testing 1,510-1,520. Of course this could also the open the door for a bigger move lower, but there’s a clear level to watch to protect yourself again that (more on that below).
I still stand by my opinion that this has been a good sell zone, as it allowed you the ability to protect yourself against a potential pullback vs a key psychological support level. Nor has the market gotten away from you here where you’ve missed out on much upside beyond the expected 1,500 target (unless you consider a move to 1,503 “missing out”). However, now that pessimism seems to have crept back into the market (as measured by the VIX), in the face of strong price action, I’m expecting further upside. I’m using the 1,495ish level as a criteria for this call, remain above it and 1,510-1,520 is my target for this week.
Maybe we see more dull days like today in the S&P500 until QQQ resolves itself of the sideways channel it has been trading in since the new year started. QQQ is sitting on a lagging 3% year-to-date gain, more than 2% behind the gains of the other major index ETF’s. This remains a headwind as the broader SPX attempts to extend beyond 1,500. However, QQQ’s channel also presents a possible catalyst should it start notching some consecutive daily closes above the $66.30-$66.40 range. QQQ hasn’t closed below $66.50 once all year.
Did you know that you can watch Stockhaven trade live in real time?
Learn how to daytrade by watching someone else trade! Watchhimtrade.com is the only site that lets you look over the shoulder of a professional daytrader.
Watch this video now where he shows you how it’s possible to make 100% in just 5 minutes!