Monday, March 12, 2012

Market Madness Daily Market Update - 3/12/12


It was a largely uneventful day in the markets with flat trading in most US indices. The DOW and the S&P both managed to finish just slightly in the green with other indices just to the other side in the red. The DOW gained about 37 points (+0.29%) and the S&P posted up a mere 0.22 points, or +0.02%.

Diving into some charts lets start off with the large cap SPX below. As you can see the rebound is "stalled" right at our 2011 high water mark, and just below the new high from two weeks ago. What we don't want to see here is another "correction" prior to breaking to new highs above those of two weeks ago, at a mere 7 points away. This would leave behind an ugly double-top formation on the charts and a lot of traders watch that. On the other hand, technicals, including MACD and the SPX : RUT ratio, continued to show some improvement today. Suggesting a strong possibility of topping those levels this week. Price/technical action is  currently presenting a bullish case while other factor argue for more caution. This has been a rough market to be cautious in, however.

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Our most commented on index of late, the small cap RUT, finished the day down about 1/3% to sit right on our prior channel support at 814. Despite today's less than stellar action the technical improvements in this index over the last several trading sessions still leaves it in much better shape than it has been since late January. And we remain much less bearish on the index than we were prior to last week's action. MACD also continued to improve, while the RUT : COMP ratio pulled back slightly for the day (deteriorated). Watch for a bounce off this support level (810-814) tomorrow if indices overall show any strength.

But the big mover and shaker of the day was the VIX. And boy did it move! The volatility measure plummeted a whopping -1.47 points from an already low level of just over 17, to its close at 15.64. A drop of over 8.5% for an utterly flat day in the underlying index! What does this do to our bottoming thesis? Well this may be counter-intuitive (or just plain wrong) but we see this as a strong sign of support for our thesis. Capitulation if you will. The last time the VIX reached these levels was July, 7th 2011. This was followed immediately by a spike, first to the low 20's, and then on to the upper 40's shortly after that. While we have no reason to suspect any kind of jump back up into the upper 40's, we can easily see a spike into the mid-20's occurring in short order.
You can see more on this bottoming view here, here, here, and here. Among other places.

Stay safe out there!

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