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James Brumley

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S&P 500 Caught Between a Rock and a Hard Place

There’s really not a great deal we can say about the S&P 500, other than the obvious…. As it stands right now, the SPX is under is 20, 50, and 200 day moving averages, which is technically bearish in all major timeframes. As such, the trend is bearish, but Friday’s rebound effort (fueled by the fairly anemic financial reform bill) should at the very least have the bulls curious.

Along with the halted downtrend on Friday was a halted uptrend from the VIX - and that’s where it gets really curious.

Remember how the 30 level was an effective floor for the VIX in May? Though it finally broke down, it’s come back into play as a ceiling on Thursday and Friday. Maybe it’s something, or maybe it’s nothing. For right now though, it’s actually more apt to drop hints than the market indices are.

So, the MO is simple… if the VIX cracks the 30 ceiling, that’s not good for stocks. If instead the 30 line holds the VIX down, the bulls are still in the game. In fact, we’ll still draw our bullish line in the sand for the S&P 500 at the 1043 mark (blue, dashed), which has proven to be a meaningful low for months now.  In the meantime, a wait-and-see stance may be the most prudent.

Oh, and just so you know, Friday’s volume bar on the chart below isn’t an error - volume really was that strong. Before you jump to the conclusion that it was the finical sector along that was driving Friday’s volume (it was the undisputed winning gainer for the day), you need to know that most sectors participated in the rally, and most saw a nice volume bump. That’s the last little detail for Friday’s intra-day bounce that has us thinking the pendulum may be swinging bullishly again.

S&P 500

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James Brumley is a freelance writer and registered investment advisor. He began his career as a broker with a major Wall Street firm, where fundamentals and long-term holding periods were core strategies. After that, he switched gears completely, becoming an analyst at a short-term trading newsletter that focused on technical analysis. He now manages client money using the best of both philosophies. His company, Bluegrass Portfolio Management, offers investors an opportunity to reap superior returns with minimized risk.