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Stockhaven’s Market Take 2/5/13

Yesterday I told you volatility was back, today validated that claim as the roller coaster ride for the markets continued. While some may point today’s bounce as an ‘all clear’ of sorts, you won’t find me being one of those people. The last 3 days has seen the the most volatility of the new year and high volatility is typically bearish for the markets overall. The markets will need to see these wide ranges disappear in order for a slow and steady grind higher to materialize, much like we saw from 1/3-1/28.

  • What we can learn from the S&P500′s wide ranges — SPX has had a total daily range of at least 16 points the last 3 days in a row
  • Don’t trust tech — If QQQ has taught me anything this year, its not to really trust the latest move whether it has been bullish (today’s) or bearish (yesterday’s)
  • Tradeable bottom is in on AAPL — After 2 weeks, AAPL looks as if it has carved out a bottom in the short term

The last time the S&P500 traded in as wide a daily range 3 days in a row as the last 3 days was 12/28/12-1/2/13. There is one glaring difference between this time and that though. During that 3 day stretch to end the year, the VIX was above 20 so the market was prepared for a big move lower (the move ended up being way higher). The only other similar sample I could see over the last year was 4/2/12-4/4/12. At that time the VIX was higher than it is now, but still near a 52 week low overall.

Astute followers of the market know that on 4/2/12 the S&P500 hit what was then a 4 year high at 1,422 which marked a top for the index until August. So the question is, is a short term top in place for the market? I say that depends on the VIX. If the VIX rises back near 14.50-15 but SPX is able to hold firm above 1,500 then I would say bears are getting ahead of themselves without seeing the justifying bearish price action. However, if the market goes sideways up here and the VIX continues today’s slide then I would say the opposite is true applied towards the bulls. If they both stay flat, then I’d expect the underlying uptrend of 2013 to prevail.

Is anyone else annoyed by the inconsistency in QQQ? After closing yesterday below $66.50 for the first time all year, today it closed above $67.50 for just the 3rd time all year. 3 is greater than 1 though so the bulls could be trying to hint at a forthcoming breakout. However, until I see a close above $66.50, followed by a break above $68 in the very next trading day, I am not trusting any directional move higher in QQQ. From the downside objective, the same thesis applies for a close below $66.50 that is then followed by a break below $66 the very next trading day.

Yesterday AAPL closed lower for a 4th day in a row, something it had only done twice since last May. That prompted me to suggest AAPL might be able to do something else it hasn’t done in a long time, such as close lower a 5th day in a row. Well I was right about AAPL doing something it hadn’t done in a long time, it wasn’t to the downside. AAPL was able to have its 2nd best day of 2013. If you factor in that AAPL wasn’t bouncing off a level that represented a 1 month closing low, it was actually the stocks best day since September 2012. Moving forward AAPL looks as if it will attempt to fill its post earnings gap down, leaving us with an upside target of $483. If I am right, there is no reason for AAPL to go back below $450.

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