The S&P500 is within spitting distance of new ATH’s (all time highs) and having been one of the person who thought the highs for the year were in, I’m definitely surprised. Judging by sentiment though and a VIX that is still well above its low for the year, a lot of other people are surprised as well. That is why, while I’m somewhat salty about being wrong (at least I think I will be wrong), I’m also contrarian bullish here. If everyone, who like me, said the highs for the year are in, and is still not turning bullish up here within 8 points of all time highs, then that means a lot of folks are still on the sidelines. Furthermore, it implies that if you are/were bearish on the market, you’re likely already positioned on the short side.
Whether you are bearish, bullish, or neutral up here, identifying reference points is of the utmost importance. Monday’s gap higher gave, what are in my view, a lot of critical reference points to formulate your trade outlook around. Take XLF for instance, which last week was trapped below its August 14th low of $20.35. That was potentially significant because SPY, QQQ, IYT, DIA, IWM, & MDY had all moved above their August 14th lows, and the failure by XLF to do so represented a red flag. With Monday’s gap higher though, XLF vaulted back above its 8/14 low, negating any ominous sign it was trying to give off last week.
The VIX, another “must-follow” when navigating thru the markets curves and bends, is also near a key reference point at is relates to that same date, August 14th. As that was the day market gapped down, you might’ve assumed that the VIX gapped higher, staying true to the typical inverse correlation it shares with SPX. That was the case as VIX gapped from 13.04 to a low of 13.91. Last week that 13.91 low got tested on Monday and Tuesday, it also got tested again yesterday. So far the base of that August 14th-15th gap higher on the VIX is holding. My expectation is that if that gap finally gives way you will see the indexes moving to new all time highs (or post 2000 highs in the case of NASDAQ).
Lastly, when focusing on the SPX itself, tune into the round 1,700 level (simple enough, right?). Below 1,700 and key support is Monday’s SPX low of 1,691. Below 1,691 the rally appears at a pause but not a turn. There is a bevy of support between 1,684-1,688 in SPX, with most important momentum support being between 1,670-1,678. On the resistance side its pretty cut and dry, it’s the all time high at 1,710. Above 1,710 and expect momo towards 1,725 at least. I’ve got my eye on stocks that are close to all time highs and near round psychological levels as I think they could perform very well should the market break out. GOOG ($900), AMZN ($300), PCLN ($1,000), CRM ($50), and NFLX ($300) are 5 examples of such stocks.
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