Market Madness Daily Market Update - 2/27/12

Flat Indices, Soaring Volatility

Good evening!
It was a seemingly uneventful day by looking just at the closing numbers on the various popular indices. But those closing numbers are hiding quite a lot of intraday activity.

Starting with the COMP today we have little comment but to note that after a moderate dip lower at the open it quickly fought back up to flat, and remained there for the rest of the day where it also finished. The same basic story applies to the DOW but that index finished slightly green instead of red, after roaring back from its early dip. Almost as boring as the closing numbers alone would indicate.
One headline of note concerning the DOW however, coming courtesy of ZeroHedge:
(Dow Jones Crosses 13,000 22 Times And...Closes Under)

The small cap Russell 2000 (RUT) also finished essentially unchanged (-0.03%). However, the story is somewhat more interesting here. As has been noted in earlier Market Madness Recaps this index had left the rally party in early February and has yet to rejoin the fun since. Today it experienced a larger early morning drop than other indices before turning around with the rest of them and getting back to flat. The result is further weakening in relative strength versus large caps but this is not yet nearly enough to support the idea of a reversal. Despite the fact that I personally believe one could come at any time. It's just not what the technicals are saying.

Moving on to the S&P it was a more notable day in some respects. The SPX managed to drift up to finish at about 2 points by close, recovering much better than other indices from the early morning selling. In fact it roared all the way back from almost a 10 point deficit, to at one point 6.5 points in the green. This was a break just barely above its 2011 high (1370.58) on the intraday basis. But, of course, finishing a good 3 points below that mark on the far more important daily basis.

Despite the better gains of this index it had a more volatile day than others and far more volatility than we are used to seeing these days. This is clearly reflected in a whopping 5% jump in the VIX today. Another flashing warning sign I suspect.
But, can anything stop this market's optimism? Sure doesn't seem that way lately but alas, all good things must come to end eventually my friends.

And also in other news...
Greece has finally been declared in "selective default" by S&P Ratings.
Does this have any practical meaning? Probably not.

Stay safe out there!

S&P 500 challenging 2011 highs

Well as has been par for the course lately futures leaked down over the Sunday off hours, only to come roaring back and into the green after markets open. Overnight futures weakness followed by trading hours strength has been a very common sight so far this year. And then the daytime strength has mostly been enough to put us in the green by a few points, day in and day out, resulting in the vapour volume, volatility-free drift upwards we've had. Friday's volume on the NYSE was at decade lows (ex holidays). We keep this up soon there will be nothing but computer left trading. This is NOT a healthy market in my view.

As of this writing the S&P has pushed right up against those 2011 highs at 1370.58, getting as close as a measly 10 basis points from that level (1370.48). Will she break out? I honestly don't have a clue but if it does it is going to act as a loud "buy signal" for a lot of traders (though not this one).

Don't forget to come back for your daily markets recap this evening, and every evening!
Stay safe out there!

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 leastly...deal 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