Trendline support on VIX from last July’s low was once again defended last week. Concurrently, large-cap indices in particular keep attracting sell orders near their February highs.

Last week, volatility bulls defended last July’s rising trendline for the third straight week (Chart 1); at Monday’s intraday low, VIX ticked 18.67, but only to finish the week at 20.62, down one percent for the week.

In three of last week’s holiday-shortened four sessions, VIX closed above the 200-day moving average (19.75), with the 50-day at 22.87. There is horizontal resistance at 24-25, a takeout of which can result in a spike. On 7 April, the index tagged 60.13 and reversed lower; this helped form the upper band of a five-year channel.

Amidst this came Saturday’s US attack on three nuclear sites in Iran. Time will tell how – and whether – this will impact the markets. At the time of writing this, equity futures were initially down and then swung higher.

As things stand, as long as the July trendline remains intact, there is room for VIX to rally.

Volatility bulls’ defense of that trendline comes at a time when equity bears have managed to defend important resistance levels on the major large-cap indices.

On the S&P 500, last Monday’s intraday high of 6051 follows an intraday high of 6059 three sessions before that (on the 11^th). This combines with the all-time high of 6147 posted on 19 February (Chart 2). The falling trendline can now prove to be a big hurdle for the bulls.

Last week, the large cap index shed 0.15 percent to 5968, as the bulls were unable to hang on to Monday’s high. Things evolved similarly in the previous week, with a close of 5977. There is short-term support at 5960s; once this gives way, the 200-day lies at 5814 and the 50-day at 5737.

On the Nasdaq 100, 22000 is proving tough to conquer (Chart 3). The level was first hit last December, followed by an all-time high of 22223 on 19 February. Most recently, on the 11^th (this month), the tech-heavy index tagged 22042. Last Monday, a lower high of 21980 was reached, with the week ending flat at 21626.

Despite the repeated struggle at 22000, the index remains above a rising trendline from December 2022. This gets tested around 21000. Once this gets breached, the door opens toward a test of the 200- and 50-day (20523 and 20475 respectively).

Crucially, on both these large-cap indices, the daily Bollinger bands are narrowing. This normally happens when things are about to break – either up or down. There is a lot of energy conserved in the sideways action of the last few weeks, and, once released, the prevailing low volatility can quickly make way for increased volatility.

In the small-cap arena, indices are nowhere near their highs from last November but remain at an interesting juncture, nonetheless. On 25 November last year, the Russell 2000 peaked at a new all-time high of 2466, just edging past the prior high of 2459 from November 2021. It then tumbled 29.7 percent through April’s intraday low of 1733. The rally that followed has attracted sellers just above 2100. In fact, the small cap index reached as high as 2170 on the 11^th (this month), but the gains were soon given back.

The 2100 level has attracted both bulls and bears going back to January 2021; most recently, the support was breached early March (this year). Just north of 2100 also lies a falling trendline from last November’s high. Right around there rests a rising trendline from April’s low (Chart 4). Hence the significance of 2100. Once decisively breached, this has the potential to kick in stop orders. The 200-day at 2173 helped repel rally attempts seven sessions ago. Once 2100 is lost, the 50-day will be tested at 2027.

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