SPX Is Not Out Of The Woods

 

VIX declined beneath weekly Intermediate-term support at 20.08, making a new Master Cycle low on Friday. The Cycle low put a new outlook on the Model, suggesting that these moves may be at a higher degree Cycle than originally thought.  

(Bloomberg)  Wall Street’s “fear gauge” is defying the recent market swoon.

The Cboe Volatility Index, known as the VIX, has fallen eight of the past 10 trading sessions, closing at 19.98 on Wednesday compared with 36.07 on Dec. 24. That’s at odds with large realized swings in U.S. stocks -- a potentially unsustainable divergence.

“Market internals imply a VIX of 31 based on trailing realized volatility and five-day SPX returns,” UBS Group AG strategist Stuart Kaiser wrote in a note about the gauge’s fair value. “60-day realized volatility above 25 percent is the largest driver of that estimate.”

SPX meets strong resistance

SPX continued its rally up to its Head & Shoulders neckline at 2595.00 and Short-term resistance at 2617.36, where it bogged down in the latter half of the week.  These are the critical tests that it must pass to remain bullish. The media is upbeat, but the SPX is not out of the woods.

(Bloomberg)  If there’s a silver lining for Main Street investors in the stock market turmoil of the past few months, it’s this: They now have a far more realistic idea of how much risk they’re willing to take—and a new appreciation for what portfolio diversification means.

The plunge in the S&P 500 late last year, 19.8 percent from its September high to its December low, wasn’t quite enough to meet the traditional definition of a bear market (unless you’re rounding up). And stocks have climbed back more than 9 percent since. Still, after a very long bull market, fear of missing out has suddenly morphed into worry about years of fat gains melting away. Some investors are taking a serious look at the risks in their portfolio for the first time in a while. Financial planners see it in their offices. “Our highest client acquisition periods are when the markets are getting murdered,” says Lou Stanasolovich, president of Legend Financial Advisors. “We live for this.”

NDX meets Short-term resistance

NDX broke through a trendline to meet up with weekly Short-term resistance. The Cycles Model suggests that NDX is either at or very near the end of its rally. There is a potential Head & Shoulders formation that, if triggered, may erase up to 3 years of gains. Stay tuned.

(Bloomberg)  Technology stocks have seen solid gains since tumbling to a 15-month low late last month, but investors aren’t convinced that that low represents a bottom for the sector, which has been volatile amid questions over growth and valuation.

The S&P 500 information technology index is up 10 percent since the close of trading on Dec. 24, when it ended at its lowest since September 2017.

Among notable gainers over the same period, Nvidia Corp. has risen 17 percent, Advanced Micro Devices has climbed 22 percent and Oracle Corp. is up 13 percent. The moves have been even more sizable when it comes to some of the market’s most closely watched Internet stocks. Netflix Inc. is up more than 40 percent over that period, while Amazon.com Inc. has rallied 22 percent and Facebook Inc. has risen 16 percent. All of these, however, remain decisively below record levels.

High Yield Bond Index tests Short-term resistance

The High Yield Bond Index managed to rally above Long-term resistance at 194.25 only to challenge Short-term resistance at 195.82. MUT is not on a sell signal above Long-term support/resistance and the trendline. The retracement rally may have played out after more than two weeks of gains.  The 7-year Trendline is coupled with a potential Head & Shoulders formation that may give us the final outcome, if triggered.

The Financial Times comments, "First high-yield corporate bond deal in weeks comes to market."

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Disclaimer: Nothing in this article should be construed as a personal recommendation to buy, hold or sell short any security.  The Practical Investor, LLC (TPI) may provide a status report of ...

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