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Stockhaven’s Market Take 1/30/13

The last time SPY had a positive day after a red day it followed that up with a 7 day winning streak. This time SPY had no such luck, failing to convert yesterdays gains into a 2 day winning streak today. All is not ill though, as the VIX again elevated without the bears breaking the S&P500 below psychological support at 1,500 and the index has now notched 4 consecutive closes above the round level. There was one major trouble sign that popped up today though, and it wasn’t necessarily the VIX’s 7% rise.

 Stockhavens Market Take 1/30/13

DJT Daily 01/30/13

  • DJT get smacked — The Dow Jones Transportation index just about gave up 5 days worth of gains in one ugly day, its worst since 11/14/12
  • QQQ again gets rejected — Like a pimple faced boy asking the hottest girl in school to the dance, QQQ was once again rejected as it crossed above $67.30
  • VIX manages 3rd best close of the year — In a sign of heightened anxiety above 1,500 the VIX closed above 14 for just the 3rd time this year

The DJT has been a helpful hand in leading this market higher as the index itself has rallied to all time highs. Today’s pullback is not a welcome sign to those expecting higher prices. The index would be in much better shape if it pulled back 1-1.5% over the course of a few days, but today saw it lose 1.5% in a single session. Downwards volatility like what was displayed today in DJT hasn’t been seen one time all year. Nearby support is at 5,750 with a key doji low from 1/23 at 5,734 below that.

Well the story of 2013 remains that technology has been relatively stagnant since the first day of the year as measured by QQQ. The ETF tried to break $67.50 for just the second time this year but was rejected and closed near its lows around $67. Aiding the sell off was the fact that 2 of the 3 etf’s biggest holdings (AAPL & GOOG) gave up their gains on the day, topping out just shy of key resistance levels no less. In addition, AMZN, which gapped up near an all time high, sold off sharply from its $283 open to finish in the low $270′s. Moving forward, keep an eye out for a close above $67.30 or below $66.60 to signal the next directional move.

Turning my attention to the VIX, which has now risen 15% on the week, I respect that today’s move higher did indeed bring the indexes meaningfully lower. Yes, we weren’t even down 1% in the S&P500 but today’s losses were the most it suffered on a daily closing basis all year. Combine that with the Russell 2000 (another index that made new all time highs this year) selling off 1%, and we’re starting to see the VIX’s historical inverse correlation take hold on the market. Here is what I said in regards to the VIX yesterday:

“I’m watching the 13-13.50 range to be exact as somewhat of a tell for the VIX here and the market as a whole. I expect we see sub 13 before we see above 13.50 but if I am wrong I’ll be on the look out for a short term top, and possibly an intermediate one as well.”
-Stockhaven’s Market Take 1/29/13 

Well the VIX popped up above 13.50 with vengeance and today’s high of 1,510 (ok it was 1,509.94 to be exact) looks as if it could be that short term top I was alluding too. I need confirmation in the form of a break below 1,495-1,500 though in order to start targeting a move severe move lower towards 1,450. The flip side of this is that with the VIX up 15% on the week and SPX not yet experiencing a significant pullback, an erosion in volatility could bring about a powerful move higher.

One last thing, for those you who think I’m changing my mind a lot these last few days it is because I am. The market is at a point where it is starting to give very different signals and in my experience you’ve got to be open minded to numerous possibilities when those signals start flashing, otherwise you’ll get smoked by an outcome you weren’t expecting or prepared for. Don’t ever be afraid from changing your mind when it comes to the market, its a skill we started developing at age 3 when we wanted to go the park but then decided to stay home and watch tv instead.

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