EC 7 Fearless Stock Market Predictions For The Week Of March 29

Stocks had a big run-up into the close on Friday, March 26, which seemed like a mechanical move higher that was driven by a surge in futures volume. This sent S&P 500 futures higher by more than 20 handles in the final five minutes; it was a rush, it would seem, to get hedged into the close.

There was a rather large increase in put activity in the S&P 500 options market. Perhaps that increased volume resulted in a surge in market-makers’ hedging activity, which helped to push prices higher. If the put options were sold, that would cause market-makers to be long puts, which means they would have to hedge by buying S&P 500 futures.

This is just a thought, however, and I unfortunately won’t know until I get to look at open interest changes on Monday morning, and it likely won’t matter by then.

S&P 500 (SPY)

Despite the index closing at a new high, it didn’t pass resistance at 3,985 in the cash market after nearly falling off the cliff on Thursday morning. Meanwhile, the S&P 500 futures closed around 3,960, which I have deemed to be the very top end of the range for the S&P 500, leaving it to be tested one more time.

One more time, I will defend that as the top of the range, and one more time, the market will challenge my belief. If it fails, it fails. This 3,950 to 3,960 region has been in the upper range since the beginning of the year, and it has been a better call than most have had over this period of time. Certainly, a much harder call than saying the S&P 500 will climb to 4,400, just because.

If we finish lower on Monday than Friday’s move, higher movement would invalidated and could be seen as a rejection of the previous all-time highs, and the region at 3,960 would stick as the upper bound.

If 3,960 fails to hold as resistance, it would be because the VIX is finally breaking down below 20 for good. I have had so much confidence in the 3,960 level on the S&P 500 over the past few months because I believed the VIX was at the bottom of the range, around 20. But now the VIX has had its most serious test, and that is because the VIX closed on Friday at 18.9 for the second time last week.

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Disclosure: Mott Capital Management, LLC is a registered investment adviser. Information ...

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