A Bounce Off the Edge?

SPX Daily 271212Happy Holidays, Friends. I’m back in the office today after some time off, and while I haven’t been posting much of late – the good news is that my desk has been exceptionally busy as we wind our way toward year’s end – we’re getting a large enough move today to make it worth our while to take a step back. The proximate cause – there usually is one – was a statement by SenateMajority Leader Reid, who opined that the fiscal cliff “looks like where we’re headed”. These discouraging words contributed to a nice sell-off; the question is, are we near a buying opportunity, or the cliff?

I do not pretend to have any edge whatever as far as handicapping how the current negotiations in DC will play out, or what the market impact will be, win, lose or draw. Today’s vertical bar, assuming that we close around here, is elongated and ugly (for those who are long), and is through the lower Keltner Channel band. Still, given where the Fibs are drawn, this looks like a buying opportunity, although I would only be looking to put on a small position pending confirmation. In plain English, given the move today, bottom fishing is tempting, but some confirmation from a market that is actually beginning to move higher would be needed for me to want to get even mildly aggressive.

VIX Daily 271212One other thing that’s often worth a glance is the chart of the VIX. This is sometimes referred to as “the Fear Index”, and while it doesn’t always illustrate concern, it does tend to spike when the market is under real stress, and players are looking for insurance on their longs. The daily chart has been trending higher, and is now threatening to break last July 24th’s 21.00 high. If the VIX begins to retreat, I’d be more inclined to look for an upside reversal on the SPX.

Best of luck, Friends, and here’s to a happy, healthy and profitable 2013.

 

P.S. The SPX did have a nice close yesterday, and a move above yesterday’s high of 1422.80 would be bullish. That doesn’t look to be the initial direction this morning, however; trade is thinning out (as are traders), and as of 9 EST futures are looking to open rather south of north. We’ll have to see if there are any headlines, but my own inclination is to stand aside for the day. Many institutions will be looking to rebalance for year end, which will entail taking profits in asset classes that have been working, and moving them to lagging areas. I know, that isn’t how we trade, but it’s one of the tenets of portfolio theory. I’d rather not get caught in their wake, but in any case, good luck with whatever trades you undertake.

About the Author Todd Mitchell

Todd Mitchell is the CEO & Founder of Trading Concepts, Inc. He's been trading since 1994 and has mentored over 12,000 traders from Wall Street to Main Street. He's an expert at developing strategies for creating more consistent daily, weekly and monthly income.

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