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Stockhaven’s Markets Take 1/29/13

The S&P500 got back to its winning ways as it closed at a new 5 year high led by energy as XLE rallied 1.6%. Sectors seem to be taking turns making new highs. While I’d prefer to see the market move higher on the back of all sectors, there’s no need to fight the tape as SPX has begun its ascension toward my next target of 1,510-1,520. I do remain skeptical of this move though if it isn’t accompanied by QQQ breaking out of its channel.

 Stockhavens Markets Take 1/29/13

SPX Daily 01/29/13

  • Is energy ready to move big? — Even with oil 11% below its 2012 highs, XLE is testing 5 year highs right now at $78
  • Google needs a breakout — GOOG has spent the last 3 days consolidating the gains from its positive post earnings reaction, but now the stock needs to break out
  • The VIX can go lower — Yes I know, the VIX is near 5 year lows, but that doesn’t mean it won’t go lower

Another sector looks like it wants a turn hitting multi year highs, and that’s energy. XLE’s  2 biggest holdings by a wide margin are XOM & CVX and both are on the verge of breaking key resistance at 52 week highs. XLE was a real laggard at the beginning of the 2012 rally but that has not been the case whatsoever this year, the ETF is up almost 10% so far on the year. If XLE can break $78 convincingly and trade towards $80 it will be another bullish catalyst that helps this market move higher.

As anyone who follows the tech sector or reads my articles knows, QQQ has been stuck in a boring sideways channel for much of the year. If you ask me, the sideways action in QQQ is also the reason we haven’t seen a violent move higher, not that there’s anything wrong with the slow and steady grind higher we are seeing but I digress. GOOG is at a point where it can help QQQ bust out of that channel though. GOOG is the #3 holding of QQQ behind AAPL & MSFT and it too has been channeling for the last 3 days between $745ish-$755ish.

I’m not going to be cute and say GOOG needs to break $757.50 or $758 or anything like that, no, GOOG needs a clean breakout of $760 to trigger a move to new all time highs and become a catalyst that busts QQQ out of this channel. In my eyes, 3 days is enough time to consolidate gains and there isn’t any reason we shouldn’t start to see signs of the $760 break out as early as Wednesday. This isn’t to say it must break $760, but it does need to stop going below $750 and start closing above $755, something it hasn’t been able to do.

I warned yesterday that I felt it was foolish that the VIX closed at its best level since 1/9 even though the SPX hadn’t pulled back meaningfully from 1,500 whatsoever.

“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.”
-Stockhaven’s Market Take 1/28/13 

I will not dub this a correct call just yet, even though the VIX did decline back towards 13 on Tuesday, but a break below 13 in the VIX and I’d expect to see SPX moving beyond 1,510. 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.

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