Mid-Day Madness Recap

Well, for the handful of you out there who have caught on to this site we hope you benefited from our analysis of the past week. If you were sympathetic to our thesis and acted accordingly, you should be sitting just fine today. If not well, better luck next time!

The major indices are down about -1.5% as of this writing. By far the ugliest day of the year to date.
We mentioned in out newsletter yesterday that "tomorrow should provide more clarity." We believe it has done that today and are advising our followers to adopt a more defensive posture for the immediate future. Those that have not already done so, that is.

See you for our Daily Market Madness Recap!

Market Madness Daily Market Update - 3/5/12

Two red days in a row now. What is the world coming to?
Its senses, maybe? Nah, probably not.
But bear biases aside what is price action saying? After all what we, or anyone, think the market should be priced at is irrelevant. Price is truth.

The bears were mostly able to hold their ground today, with minor to mild declines across most indices. One small, and surprising exception to this came in the form of the small cap RUT index (Russell 2000). We have been somewhat badmouthing the RUT for awhile now for its poor performance relative to other indices but it isn't terribly surprising that she outperformed to correct some of that divergence today. The question is can it be followed up by a stronger performance? If we don't see more capital inflow to the small caps and high beta issues soon this rally will stagnate, or even falter.

And back below the 2011 highs we go. It's to be expected that we would flirt with this level for awhile but bulls probably would have liked to at least see a successful bounce off that 1370ish area, acting as support. Though we still have not had even a single 1%+ down day yet this year in the SPX, with today being about a 5 point loss for -0.39%. However, MACD weakened further and relative strength slowed its advance against the small caps. It's a mixed bag at this point instead of the all positives of weeks past but it could still go either way. Tomorrow should provide more clarity we think. The outperformance in the RUT can clearly be seen in the relative strength readings of both the RUT/COMP above, and the SPX/RUT below.

We want to very briefly touch on volatility measures. In our weekly report published Sunday we mentioned our view that the VIX has been forming a bottom and could be setting up for one of its classic spikes. Today the VIX made a move upward of +0.76, to 18.05 for a 4.4% gain on the day. It was, however, up over 7% at some points in the day. We think buying volatility as a hedge may be a good play right now if you are still heavily invested in the market

That's it for today! See you next time and stay safe (and lucky) out there!

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!