With the exception of the NASDAQ, the major indexes all achieved new multi year closing highs today. Coming into the week I gave a checklist of sorts that would guide me as to whether or not the market was forming a short term top. I’d like to revisit that as we head into the back end of the trading week.
- QQQ proves unreliable — QQQ closed at its highest level of 2013 on Friday, but will give up these gains and move back below $67.50
- SPX ranges stay wide — Watch for the daily ranges on SPX to stay in the 10-16 point vicinity
- VIX maintains a floor at 13 — The VIX will stay around/above the 13 level
2 days have passed and QQQ still remains above $67.50, but it definitely didn’t sustain any momentum when it traded above $68. This may just be the way QQQ plays out for the foreseeable future, move to new highs, channel for a few weeks, and repeat the process. Overall, the most bullish case would have been if QQQ followed up Friday’s move with more momentum Monday, but since it didn’t give up gains you can’t say it is behaving bearish either. I’ll chalk this action up so far as neutral-slightly bullish. Key support remains $67.50 with resistance now just above $68.
The last 2 days has seen the S&P500 trade in two of its tightest daily ranges all year, a great sign for the bulls. This is the strongest evidence I see that a short top is not being formed, but rather a consolidation before new highs. Should the daily ranges start to exceed 10 points, without moving much above 1,520ish then the previous statement will be called into question. At present though, the tight ranges are a sign of lower volatility relative to the last 2 weeks and being that we’re at higher prices that is a good sign. Remember, high volatility at high prices tends to have bearish implications.
The VIX has struggled to maintain a floor at the 13 level, today falling 2%+ down to 12.60. The VIX is starting to look more and more like it wants to go below 12 and trade in the 10-11 range but I don’t want to get ahead of myself just because something looks a certain way. Watch now for the VIX to struggle to regain the 13 level as a sign that low volatility will persist and in turn result in this market moving yet even higher. Bottom line, the warning signs that were popping up last week have gone back into hiding for now. Until they show themselves again, the bulls are good to go.
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