S&P Chopfest Continues Even As Index Creeps Higher
Dr. Duru | May 06, 2015 04:20AM ET
T2108 Status: 56.9%
T2107 Status: 56.0%
VIX Status: 13.4
General (Short-term) Trading Call: Neutral.
Active T2108 periods: Day #136 over 20%, Day #95 above 30%, Day #39 above 40% (overperiod), Day #1 under 50% (underperiod), Day #5 under 60%, Day #205 under 70%
Commentary
I have almost felt like a broken record since November/December whenever I note that the S&P 500 (via ARCA:SPY) is trading in a chopfest. Yet, “chopfest” is exactly the perfect description for this trading action even as the index steadily creeps higher along its 50DMA support.
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The S&P 500 has gone almost nowhere since the chopfest began in November – yet the uptrend from the 50DMA has lasted the entire time
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During this chopfest, volatility has made some big moves. However, for almost three months, volatility has remained relatively mute. It is very easy to get lulled asleep here, but I would say volatility is becoming a coiled spring at this point.
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Is the VIX coiling for another jump higher?
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Although the S&P 500’s 1.2% decline just reversed Friday’s one-day surge, T2108 has moved to a fresh 5-week low. At 44.6%, I find myself thinking about oversold conditions again…and I know NOT to get too excited. Yet, the extended decline of T2108 relative to the S&P 500 has me wondering whether a bigger breakdown is finally around the corner. I have not yet acted on this suspicion.
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The 50DMA has also acted as support and a magnet for the NASDAQ (via NASDAQ:QQQ). The trading has been better-behaved than on the S&P 500.
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The NASDAQ is also following along its 50DMA
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So it should not comes as a surprise to note that Apple (NASDAQ:AAPL) continues to pivot around its 50DMA. This trading behavior has easily dominated the Apple Trading Model (ATM) for many weeks now. A potentially large caveat arrived today in the form of a DECLINE in the 50DMA. If AAPL does not pick up the pace soon, this loss of momentum could feed on itself – especially given the stock has failed to generate much post-Watch momentum and excitement. The latest topping pattern is looming ever larger at this point: the post-earnings “gap and crap” combined with a bearish engulfing pattern.
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Apple may be losing momentum as the 50DMA begins to turn downward
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The dollar index is looming as a bigger and bigger wildcard. The primary uptrend at the 50DMA has ended and given way to a confirmed breakdown. Yesterday (May 5) the index attempted to rally but stopped cold at resistance which was former support.
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The dollar index is slowly breaking down. Can it recover its former luster?
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The dollar’s new weakness has potentially large implications for commodities and emerging markets. Oil in the form of United States Oil ETF (NYSE:USO) is continuing its rally. However, a STRANGE thing happened today. While USO gapped up, Energy Select Sector SPDR ETF (ARCA:XLE) failed to hold onto its opening gains. The volume was not high, but the price action looks like the end of a move. With oil sapping away the consumer surplus that economists have been waiting to get applied to the economy, several economic assumptions and inflation forecasts may need adjustment soon.
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Which oil play will blink and lead the other one?
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United States Oil ETF (USO) gapped higher as oil continues its rally from its recent bottom…
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The rally for Energy Select Sector SPDR ETF (XLE) may have just ended for now.
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I took this divergence as a signal that dollar-related/sensitive bets could be ready for a big move. I made a big bet on my favorite hedge play: iShares MSCI Emerging Markets (ARCA:EEM). I am weighted to the bearish side, and I extended out the typical trade with puts expiring in June and calls expiring in July.
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iShares MSCI Emerging Markets (EEM) takes a long overdue rest
Daily T2108 vs the S&P 500
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Black line: T2108 (measured on the right); Green line: S&P 500 (for comparative purposes)
Red line: T2108 Overbought (70%); Blue line: T2108 Oversold (20%)
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Weekly T2108
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Disclosure: long EEM calls and puts
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