The broad stock market has continued to frustrate both bulls and bears by remaining within a trading range for quite some time. However, today, $SPX closed at a new all-time high and thus is on the verge of an upside breakout. While this produced much glee on CNBC, there could be problems once again if this breakout is not confirmed.
The simplest confirmation would be another $SPX close at new all-time highs, and this time above the all-time intraday high at 2125.92.
The stock market weakened considerably this week, and many of the indicators are now following suit with sell signals. But $SPX price action continues to frustrate both bulls and bears, as it refuses to trend higher or lower.
So now for $SPX, there is support at 2067 - 2072 (the April and May lows), with resistance above at 2125 (the all-time highs). Equity-only put-call ratios have deteriorated badly this week. Both ratios have rolled over to sell signals.
Stocks dawdled at or just above the previous all-time highs, but couldn't convincingly push through with a strong move. As a result, things began to deteriorate. Now, 2070 has some significance. If $SPX breaks down below 2070, a more bearish scenario should unfold.
Equity-only put-call ratios are still on buy signals. Both have "wiggles" curling upwards after Thursday's big down day, but they remain on buy signals.
One of the most successful investment strategies practiced by hedge funds (and other sophisticated investors) in the last ten years has been the “volatility short” trade. It is rarely mentioned on TV or in the media, but that is not too surprising. They would rather promote things such as the “Japan carry trade,” which wasn’t necessarily a profitable strategy at all unless a great deal of risk was taken.
Both bulls and bears are frustrated by recent action. Most recently, $SPX has made repeated attempts to challenge the all-time highs, but it has not yet been able to break out. There is resistance in the 2110- 2120 area that has contained all advances.
In any case, the $SPX chart is still neutral until it breaks out of the triangle in a convincing way.
There was some positive action this week, but in the end it's still a trading range market. $SPX moved to the high end of the range almost challenging the all-time highs, but it could not break out on the upside. There has been some improvement in the status of the other indicators, but unless $SPX can break out to the upside, it will not really matter.
Equity-only put-call ratios remain on buy signals, as their 21-day moving averages continue to drop nearly every day.
These are two Exchange Traded Notes (ETN’s) that attempt to hedge a long “stock market” portfolio by using a long volatility component. We have written about VQT before (Volume 21, No. 4), and I often talk about it in my seminars and webinars that discuss volatility trading.
When $SPX broke down through the 2090 support level, that was a very negative sign, especially since stocks failed at the old highs.
There is now strong resistance at 2110-2120 (the February and March peaks), as well as at 2090 (again). As for support, the initial support level will be 2040, the early March lows. Below that, there is support at 1970-1990, which is the area of the December and January lows.
In figure 1, the support at 2040 and the resistance at the recent all-time highs of 2120 are marked as a trading range. Until $SPX breaks out of that range, it really doesn't have a trend in place. To support that conclusion, the indicators are somewhat mixed.
Equity-only put-call ratios have remained on sell signals during this latest rally.
The U.S. Dollar has been getting a lot of press lately as it has nearly gone parabolic with a huge rally on top of an already long-term rally. Optimism is rampant, and bears are cowed. This is likely a good time to lay out a plan for a trade on the short side.
