SPY: Short 75%
QQQQ: Short 75%
This past week was quite interesting, the markets started the week strongly giving the impression that we'd seen another "buy the dip" scenario. However, that all changed by the end of the week and now we have the potential for some more serious downward movement to begin.
If we get a close below 880 on the SPX and 1350 on the NDX, the selling pressure should increase, although at this point the market has been quite resilient and we could simply go sideways for a while here.
On to the analysis..
SPX Chart - Bigger Picture
The bigger picture is starting to confirm that at the very least we'll see a sideways consolidation type pattern between 850 and 950. We do also have the potential for a drop to the 800 level without causing too much damage to the technicals.
The upside seems capped in the near term as the resistance at the 200 DMA and the horizontal resistance overhead seems unlikely to be broken right now.
SPX Chart - Shorter Picture
The shorter term picture now shows the clear break of the up trend channel that happened on Thursday and Friday. This index now only has the horizontal support at 875 to rely on. That doesn't necessarily mean that we're heading south straight away, but it's another blow that the market has taken that weakens the overall outlook.
The MACD is still decisively negative and the RSI is weakening also. This chart seems destined to test the 50 DMA at 850.as a minimum. Personally, I think a dip down to 800 would be healthy for the market in a wider sense.
For this week, support on the SPX is 850 - 875 and resistance 900 - 920.
NDX Chart - Shorter Picture
The Nasdaq is painting an indecisive picture through a symmetrical triangle. This index actually has more potential for an upside break as it's still holding above the 200 DMA, but the jury is still out.
A lift in volume combined with price movement will likely determine the next mid term move.
For the week ahead, support on the NDX is 1300 - 1350 and resistance at 1400 - 1440.
The VIX Picture
The VIX made a new low this past week, showing that the markets' fear is reducing significantly. This didn't last long however, and now it seems that 34 is a key level. If we get a close above 34, this should be the clincher that'll have the markets head south.
Note also how the MACD (both linear and histogram) are setting up for a bullish advance, which confirms our view that more market weakness lies ahead.
The VIX measures the premiums investors are willing to pay for option contracts and is essentially a measure of fear i.e. the higher the VIX, the higher the fear in the market place.
Quote of the Week:
The quote this week is from Indira Gandhi (India's first and only female Prime Minister), "You must learn to be still in the midst of activity and to be vibrantly alive in repose."
Advantage Credit Spreads
In case you haven't heard of our other service - Advantage Credit Spreads, we've been steadily generating a handy return each month. Check out the performance so far this year:
When you consider that the SPX started the year at about 900 points and after 5 months is at 887, these are not times for buy and hold strategies. Allocating a portion of your portfolio into a strategy like the Advantage Credit Spreads system can really provide a boost to your portfolio returns. We're not shooting for the moon here, we simply aim to collect between 4 - 8% per month for accepting a level of risk that is considered to be low at the time of entry.
The beauty to this strategy is that it doesn't rely on the market heading in a particular direction - it's considered a non-directional trading system. To learn more about this, please click here.
Also as an added bonus, this service can be auto-traded through Think or Swim for you to turn this into a passive income stream.
Feel free to email me at email@example.com if you have any questions or comments.
If you are receiving these alerts on a free trial, you have access to all of our previous articles and recommendations by clicking here. If you do not recall your username and/or password, please email us at firstname.lastname@example.org. If you are interested in continuing to receive our service after your free trial, please click here.