Damage Control - Part Deux
Are we there yet?
Some market pundits choose to debate the value of technical analysis. I’ve found it to be useful in framing patterns, measuring trends and spotting potential reversals among other things. To each his own. As an example of its use, the chart below frames Friday’s “collapse” and the subsequent partial recovery. Thus far, we have three “bullish” candles that are all contained inside the body of the big red one from Friday. Yesterday stopped short of Friday’s low and today has not yet recaptured the highs. Bulls want to pop out above the box and bears want to punch a hole in the bottom. I would say that everything contained inside the box is just noise.
Yesterday was a bit confusing. It looked as though SPX would close higher, but a late day fade gave us a red close. Meanwhile, the small cap Russell 2000 finished up more than 1.4% and several breadth measures also improved. But our vol composite wasn’t buying any good vibes, shedding seven points to move back into the darker red slice of our gauge. None of its components is bullish and all but one are now in the red.
That’s three bearish bars in a row. Stuck in a range, just like SPX.
One sign of the damage done last Friday shows up on our chart of the relationship between mid-term VIX futures (using VIXM) and short-term futures (using VIXY). We posted this to X this morning. You can see that previous dips in SPX failed to meaningfully disturb this measure of the VIX futures term structure. But last Friday’s sucker punch has produced a bearish crossover and some visible white space between the ratio line and its 8 and 21 moving averages. While this damage can be repaired should the SPX rally to and through the top of the box (chart above), this would be a bad time to put on your bullish blinders and assume that buying this dip is just the latest in a series of no-brainers. Even as I put the finish on this post, SPX has given back a decent chunk of this morning’s gains. Please be careful out there!!
All content presented here is for informational and educational purposes only. Distribution of any content to any persons other than the recipient is unauthorized. Furthermore, any alteration of content presented here is prohibited. By accepting delivery of this presentation, the reader agrees to the foregoing. Certain information presented herein has been obtained from third-party sources considered to be reliable, but there is no guarantee of completeness or accuracy and it should not be relied upon as such. There is no obligation to update or correct any information presented. Readers should not treat any statement, opinion or viewpoint expressed herein as a solicitation or recommendation to buy or sell any security or follow any investment strategy. This material does not consider the investment objectives, financial situation, or needs of any particular reader. Readers should seek advice from a qualified financial or investment advisor prior to making any investment decision.