Sunday, February 26, 2012

Market Madness Weekly Recap - 2/24/12

Time for our Sunday weekly market updates. I hope everyone had a great weekend!
Lets start with everyone's favourite volatility proxy, the VIX. As we can see in this (2 year/Weekly bars) chart below this index is sitting very close to strong, multi-year support at around 15 points. Frequently periods of extremely low volatility like this end in huge spikes to the upside. However, it can sometimes hang out for an unpredictable bit before doing so. And when trading VIX products timing is even more important than usual. MACD does appear to be beginning to turn, and stochastics have also turned up from their oversold levels. That points to a weakening trend and potential reversal but until we see some confirmation from price, the trend remains downward, for now.
Next up is our favourite index to follow here at Market Madness, the S&P 500, or SPX. The index inched higher on the week after a more volatile ride than we've seen on average this year (a year in which volatility has been nearly non-existent so far). Note that we are bumping right up against those 2011, multi-year highs at around 1370. Next week will be an important one to watch as we interact with this meaningful level. My bias is to the downside but it's important to keep an open mind and just watch what happens and be ready to react, if necessary. MACD is still strong on the weekly frame and Stochastics, while overbought, have not yet turned. This would suggest the upward trend could still continue, however, and certainly doesn't support my bearish bias.
Unlike the large cap SPX, the small cap RUT index still has some room overhead before reaching its "post-recession," 2011 highs. Small caps have been an interesting area to watch over the last few weeks. Since about the beginning of February, the index has basically stalled out, remaining flat and developing a weakening technical picture. If selling is to suddenly start breaking out, this is where we would look for it to happen first. MACD readings remain fairly decent but Stochastics look to be beginning to turn down from overbought levels. It is early in the turn however, and could easily reverse.
Lastly, but certainly not leastly (ok so there is no such word as with it), we have that good old bubblicious tech index, the NASDAQ Composite. In contrast to the other indices we cover, the COMP broke its 2011 high ceiling early in the month. Indeed, it has even made brand new decade highs! Mostly drug kicking and screaming up there by Apple, the index behemoth. The resulting carnage of a crash in AAPL share price at this point would be a hell of a sight to behold. Though painful. The damage would be far and wide, and certainly not contained to apple shareholders, or even the nasdaq. Lets hope it doesn't. MACD is still strong, and even strengthening; while Stochastics have just begun to potentially turn down out of overbought territory. But really, all you need to know about this index right now is "what is apple's share price doing?"
In summary the balance of indices remains strong and technical analysis suggests trend continuation is the most likely outcome for the immediate future. What the fundamentals are saying, on the other hand, may be an entirely different story. I remain quite bearish in my macro view for a multitude of reasons. But many other intelligent, knowledgeable people disagree, and are in fact cautiously optimistic. There's no substitute for doing your own due diligence and coming to your own informed opinion on the macro landscape. Good luck out there! Cheers, Curtis

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