Sunday, March 4, 2012

Market Madness Weekly Market Update - 3/2/12

Overall most major indices finished the week relatively unchanged with the one exception being the small cap RUT, which took a bit of a beating.

A mostly uneventful week in the large cap S&P, it ended with a slight gain of about 4.5 points (+0.33%). After an initial push up to, and then just above its 2011 high at 1370 the index essentially oscillated around that level for the rest of the week, finishing less then a point below that at 1369.72. On the weekly time frame this index and its chart remain relatively healthy. Though seemingly in need of some correction, or at least cooling off period before resuming its move. If it is to resume that move. We have some doubts.

Taking a look at the semiconductor index this week we see last week's turn in the chart is followed up by more bearish action. Though not apparent in the numbers alone, with a paltry one point loss for the week, it is clearer in the charts and indicators. A failed push up early in the week, followed by rapid deterioration and an eventual finish near the lows, left behind the bearish binary options candle formation seen in the chart below. MACD and Stochastics also continued to weaken noticeably. If bears hold the reigns come Monday and current support at 420 should be lost, look for the 400 level as the next likely support and potential rebound area. The 400 level is a fairly important level for this index right now and should be watched in the coming days and weeks.

Our index to watch of the week was, of course, the RUT. This index had been under pressure since the beginning of February and it appears it may have finally buckled under that pressure. We'll be watching closely Monday. From a technical standpoint there is absolutely nothing to like about this index in the short term. On a valuation basis? Eh. We are not overly excited about this index. The next hint of support lies around the 770 mark and we expect this level to be tested in the coming weeks should overall market weakness continue beyond last week's end.

What about volatility? The VIX was basically flat for the week after a spike up above 19 early on. Vol. measures were acting hinky last week but at least part of that may be explained by end of month options activity. Nevertheless, Market Madness is inclined to the view that we are forming a bottom here. This possibility can be seen in the chart below happening over the last six weeks. Keep an eye or two here next week as well.

In summary for this week: We feel that a cautious approach is the most prudent one for the immediate future. A comfortable spot entirely on the sidelines actually may not be such a bad idea.

Good Luck!

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