THE BOTTOM LINE:
We've seen a 1-2 month trading range market within a long-term bull trend. It wasn't then surprising to see the major indexes rebound this past week. If looking for a strongly trending market you may have missed what the indexes can give you so to speak; e.g., some two-sided trading opportunities of a shorter-term nature.
The December-early Feb. price range in SPX has been approximately 1973-2093. The January to early-Feb. SPX range to date has been 1990-2063.
The December-early Feb. price range in COMP has been approximately 4550-4815. The January to early-February COMP range has been 4575 to 4750-4773.
Last week I noted that there was the possibility of a downswing that might carry to below the aforementioned 1-month+ range, consistent with one more shot up in the S&P 500 VIX Volatility Index to above 22. SPX did see an intraday low at 1981, a bit below 1990 support; and of course rebounded after SPX futures traders 'collected' the remaining March futures sell-stops below 1990. It was then up, up and away. However, if the thought was that this was going to be a straight up rally from these lows, this isn't the nature of 'trading-range' market, which is 'caused' by the various fundamental cross-currents we're seeing currently, not uncommon in the Jan-Feb period.
Yes, we got huge job numbers, but WHAT ABOUT THE FED RAISING RATES! A very common theme: the fear of too much of a good thing! This can drive you crazy if you try to analyze the two-sided bullish/bearish anticipated influences too much. I solved this problem for myself a long time ago when I started trading pretty much off what the charts were 'showing' me; i.e., as to where the buying or selling is coming in and what the resulting price and indicator pattern(s) suggested as to the present and future trend(s).
As to the VIX, the Index did reach 22.18 intraday on the Friday preceding but not on a closing basis. I thought it possible there could be one such VIX Close above 22 this past week and that might mark the bottom but this didn't occur. My trading stance was to look for a place to buy SPX calls AND to buy VIX puts. VIX went out on Friday at 17.29. SPX went from 1995 on Friday last (1/30/15) to 2055 on Friday past (2/6/15).
On an intraday basis SPX went from a Friday peak of 2072 back down to 2055. The S&P 500 found tough going and selling interest above a prior line of resistance in the 2063 area and the Nasdaq Composite (COMP) topped out Friday after crossing briefly above down trendline resistance as is highlighted with the COMP daily chart below.
VIX Technical Commentary; Daily and Hourly charts
I'm trying out regular weekly commentary on the S&P 500 Volatility Index (VIX); I'll continue this week to feature both the VIX daily and hourly charts.
VIX traded 532,844 contracts on Friday; 420,000 calls, 112,000 puts. Of course since there is a lot of hedging in VIX calls versus stock portfolio (downside) risk by fund managers, it isn't surprising to see a nearly 4:1 ratio, call volume to puts. As an individual speculator, I was looking to be long VIX puts based on the probability that a move ABOVE 22 would be short-lived and it was. I was and am anticipating a drop in VIX back to the 16 area and possibly back to 14. Stay tuned on that!
You'll notice that I'm using a Close-only 'line' chart below. On an intraday basis VIX peaked at 22.18, saw a intraday Low of 19.24 and Closed up 2.21 (+10.5%) at 20.97.
The S&P 500 Volatility Index (VIX) Daily chart:
I generally use and display here a Close-only 'line' VIX chart. The intraday fluctuations can be extreme and can be a distraction in terms of VIX analysis on a day to day, week to week basis. At times I may note a particular VIX intraday high on this chart if that intraday high took the Index above resistance. [I'll use a 'standard' Open-High-Low-Close (OHLC) bar chart in my second VIX chart below, which is the Index on an extended hourly basis.]
VIX, a week ago (Friday 1/30/15) got up to an intraday high at 22.18, above anticipated resistance in the 22 area. There wasn't the similar Close at/above 22 that I thought could occur this past week. S&P volatility started falling from that 22.18(intraday) peak. I consider a VIX reading above 22, especially on a Closing basis, to be an 'extreme'; I consider VIX in the 22-26 zone currently to be at an overbought 'extreme' and anticipate a gradual decline, probably back to 16 and perhaps falling again to 14 or under.
Just as with the major stock indexes, VIX will see overbought or oversold extremes from time to time, usually marking (respectively) an area where a VIX top or bottom may occur.
The S&P 500 Volatility Index (VIX) Hourly chart:
The extended hourly VIX chart seen next provides a closer-in view of the past few weeks' action, with downside turning points (red down arrows) that developed already or may develop again ahead as anticipated resistance(s). Conversely, the green up arrows mark past upside turning points/support that occurred previously or are anticipated ahead.
I consider carefully the potential for a short to intermediate-term trend reversals when VIX advances to the upper 'overbought' area or into the 'oversold' zone in terms of the Relative Strength Index (RSI) with 'length' set to '21' and applied to the hourly VIX chart. (On a VIX daily chart, I use a 'length' setting of '13' for the RSI to suggest a more intermediate overbought or oversold condition as seen above.)
S&P 500 (SPX) DAILY CHART:
The S&P 500, as noted above in my 'bottom line' commentary, has had a 2-month old trading range, December into early February, from approximately 1973 to 2093. The January to early-February SPX trading range to date has been from around 1990 to 2063. I anticipate that SPX can again work up to re-test earlier resistance at prior highs in the 2093 area.
To get to the 2090-2100 area SPX must first overcome a line of prior resistance at 2063. The Index failed to do this Friday and pulled back to near support implied by the previously pierced up trendline at 2048 currently. Chart support extends to the 21-day moving average at 2032. Highlighted, more intermediate support is seen in the 2020 area; next chart support then is suggested at 2000-1990.
Near resistance is at 2063-2072; further SPX resistance is suggested at the prior 2093 top.
There's primarily only been potential for shorter-term trading within the relatively narrow trading range the S&P has been in. I anticipate an eventual breakout above 2062-2065, the 2090-2093 on to 2125 or higher. I'll also be looking at bullish trade strategies on a pullback to the 2000-1990 area if that were to occur again, especially with a low RSI and low bullishness.
If there was another bear move, 1973 down to 1950 could be tested. I'm not expecting this but I've generally favored waiting for 'oversold' RSI extremes to occur for a favorable risk to reward outlook and in order to trade on the side of the long-term uptrend. Two prior bullish intermediate trade opportunities came in mid-December as also occurred with an 'oversold' RSI and dips in bullish sentiment. Bearishness built up again in early-January but upside potential then was 60 points rather than the 100 point price swing that came earlier. Waiting pays off in this market!
S&P 100 (OEX) INDEX; DAILY CHART
The S&P 100 (OEX) chart is bullish; more so than big brother SPX given the breakout above its down trendline. However, must hold support for the bulls comes in at 900 next support then is suggested around 880.
Key OEX resistance is seen at the prior high at 924. My maximum upside objective in the near-term it to the 930 area.
I'd be happy to take profits on calls in the 920 area, if reached.
THE DOW 30 INDUSTRIAL AVERAGE (INDU); DAILY CHART:
The Dow 30 (INDU) Average is bullish in its pattern with the breakout above 17600 trendline resistance. 18000 could be reached, then 18100 or a bit higher as a next target.
17600 is key near Dow support, then at 17400. A Close below 17400 that was sustained would be a bearish chart development.
Buying the last dip to under 17100 was a great move if you managed that feat; taking profits in the Dow Index on an extension of this recent advance seems a wise move to keep call profits. I donâ€™t see that we can count on a big new up leg just yet. 18200 looks to be a maximum upside target.
NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:
The Nasdaq Composite (COMP) is bullish in its pattern if it can overcome trendline resistance at 4765. Upside potential above this area doesn't look huge, perhaps to 4815 or a bit higher, to the 4860 area at most in my estimation.
Key near support is at 4700. Fairly major support then comes in around 4600. I'd look at the price range as a guide to trading. As noted in my initial comments above; i.e., the wider 2-month price range (December-early February) in COMP has been 4550-4815. As a guide to trading the NDX options, this past month or so (January to early-February) COMP range has been 4575 to 4750-4773. I don't see a compelling chart story to suggest a sizable upside move ahead, at least near-term.
NASDAQ 100 (NDX); DAILY CHART:
NDX has to gain traction above 4273 to keep bullish momentum going. Next resistance is at 4335.
Near support is seen in the 4200 area. Major support begins in the 4100 area.
I'm neutral/no strong opinion on looking for much further upside in this sideways trend. 4100 was a positive buy and 4300 would be a place to take profits.
NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:
The QQQ trend is mixed is bullish but with resistance at 104. A decisive upside penetration of 104 could lead to 106.
Key support is seen at 102, with major support beginning at 100. Volume indicators are mixed. Stay long pending what happens at the resistance trendline.
RUSSELL 2000 (RUT); DAILY CHART:
I didn't mention in my initial my 'bottom line' index commentary, but the bullish Russell chart pattern is slightly better than the other indexes after RUT traced out a symmetrical triangle that was followed by the Index's breakout above the upper trendline, suggesting upside potential to 1260 or higher.
Near resistance in RUT is seen at 1220, extending next to 1240. Near support is highlighted (green up arrow) at 1193, extending to the 50-day moving average at 1183. Next support comes in around 1165, extending to 1153.
Fly in the bullish ointment is with a sustained move below 1160. Major support then begins in the 1140 area. RUT also has a pattern of downside OR upside reversals after upper or lower RSI extremes occur.
GOOD TRADING SUCCESS!