Wowzer. My pants would catch on fire if I said I expected this move today. This is definitely the type of move that puts traders who were short or didn’t get long the pullback on notice. This is by far the trickiest set up of the year I have seen the markets present. On the one hand you’re right back near the short area of 1,520-1,530 that proved to be a very successful short, on the other hand you probably wouldn’t be surprised if we blew past the year-to-date high of 1,530 tomorrow given the strength seen today.
- VIX 16 sparked today’s rally — The indexes got off to a good start, but when the VIX moved below 16 is when things really ramped up
- Dow Transports take the lead — The Dow Jones Transportation index, which has led this market higher, got back all of its losses from Monday and then some
- Tech still giving a net short signal — QQQ is below its recent base which suggests to me that the bears are still in control, even after today’s bounce
As stated at the outset of this post, I did not expect to be back at 1,520 by the end of the day. However, based on the VIX, there was definitely reason to be bullish. See my take on yesterday:
“Interestingly enough SPX managed to close just above the 1,495 level that has been so key lately. With this close the VIX slumped, falling 11% but still it still remains above the 16 level. Current levels on up to 1,505 is resistance overhead. If we do trade up beyond 1,505 it will have to be with the VIX also falling back near 15 in order to have me believing a bottom is in.”
-Stockhaven’s Market Take 2/26/13
Well if you take a 5 minute chart of the VIX and lay it over the S&P500 you will see that the VIX crossed below 16 at 9:50, at that same time the S&P500 was crossing above 1,500. Obviously the move did not stop there as the VIX ended up sliding an additional 8% after the 16 break aiding SPX to the powerful move you saw today. If you just simply stayed long today based on the VIX continuing to slide you had a good day. The VIX was never able to find its footing at all as the day wore on, and that was your cue to keep expecting upside. Should the VIX find footing tomorrow and move back above 15 then I will not expect much movement beyond today’s high in SPX.
The big standout today was the Dow Jones Transportation index which rocketed nearly 3% and made up all of its losses from earlier in the week. This is really a big deal to me because this index bottomed with the market on 11/16/12 and topped with the market on 2/19/13 so it is definitely a good “tell” of sorts. If this rally is to be trusted in the overall market then you will see the DJT remain above the 5,900-5,925 range. Should SPX pullback but DJT remain above that level I would recommend buying the dip.
Not everything was super bullish today, technology lagged the rally and QQQ got dumped pretty good into the close. In fact, QQQ declined from $67.62 to $67.24 the last 2o minutes of the day, that’s a decline of 0.5%. There was some obviously some downward momentum into the close on tech and if it follows thru to tomorrow’s open QQQ will find itself back below $67 in a hurry. Either way, QQQ needs to regain the $67.50 level with consistency in order to not represent a bearish omen for this market. Continue to play strength in the sector thru a stock like GOOG while shorting weakness in the form of AAPL. Until GOOG cracks $790 or AAPL $455 then both of those trades will keep working.
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