Bear Trap Door

The Bear Trap Door opened on December 19,when Federal Reserve Chairman Jay Powell said: "The balance sheet is on auto pilot, we don't see balance sheet runoff as creating problems." The S&P 500 Index had pulled back to the long-term trendline and could have gone either way as many expected dovish comments would support an advance. Instead his comments triggered a bear market. Despite Powell's attempt to soothe the markets Friday, it will now take extraordinary positive developments to renew the uptrend that began in March 2009. S&P 500 Index charts follow in the market review along with a mark-to-market update for SPDR S&P 500 ETF (SPY) put spread suggested in Digest Issue 49 "Technical Damage [Charts]."

Review NotesS&P 500 Index (SPX) 2531.94 gained 46.20 points or +1.86 % last week after making a new low at 2346.58 on December 26 then reversing to make a wide range reversal and advancing 116.60 points. Friday it recovered 84.05 points on Powell's latest conciliatory comments after losing 62.14 the day before. Should the rebound continue considerable resistance can be expected between 2550 and 2600 as it moves up toward the broken upward sloping trendline shown in the charts below.

VIXCBOE Volatility Index® (VIX) 21.38 declined 6.96 points or -24.56% last week after peaking at 36.20 on December 26 as the S&P 500 Index made a new low before reversing. Since early October the upward sloping 50-day Moving Average has done a god job containing pullbacks and Friday's close ended just below. Any further decline would support the view that the S&P 500 Index will attempt to test resistance between 2550 and 2600. Our similar IVolatility Implied Volatility Index Mean, IVXM using four at-the-money options for each expiration period along with our proprietary technique that includes the delta and vega of each option, declined 5.88 points or -23.57% last week ending at 19.07. The one-year volatility chart shows a recent spike up above 30, comparable to the spike last February suggesting a capitulation bottom was likely made on December 26.

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