Market Divergence Offers Mixed Clues
Wednesday’s action favored the bears for much of the session but the bulls left some clues once again their not ready to give up the push to higher highs. The major indexes were dancing around key support and resistance levels right into the closing bell with the action favoring the bulls once the dust settled.
The Dow rallied 117 points, or 0.7%, to finish at 16,518. The index opened slightly higher and made a run at 16,500 before falling to a low of 16,357 an hour into the session. The rebound was swift as the blue-chips turned green again ahead Wall Street’s lunch break and pushed resistance the remainder of the day. There was a big battle to keep the Dow below 16,500 that was eventually won by the bulls but another drop below 16,350 could be a good signal lower lows are coming.
The S&P 500 advanced 10 points higher, or 0.6%, to settle at 1,878. The index made a push to 1,875 out of the gate but quickly faded to a low of 1,859.79. I’ve talked about support at 1,860-1,850 being a crucial level for the bulls to hold and although 1,875 held, the bears made a dent into this downside zone. The next 25 up or down points from here will be crucial in determining if there will be a breakout or breakdown.
The Nasdaq declined 13 points, or 0.2%, to close at 4,067. Tech tried to recover the 4,100 level that served as prior support and is now resistance after making a run to 4,091 at the start of trading. However, the index swiftly tested a low of 4,021 shortly afterwards and spent the rest of the day battling the 4,050 level. The close below 4,070 was bearish and while last Monday’s low of 4,014 held, I mentioned these two levels to watch specifically for clues of a continued breakdown. The 4,075-4,100 area will once again be in focus on today’s open and another drop below 4,050-4,025 might provide a good short opportunity for the early birds. Heads up, if 4,014 cracks, I might suggest we go short the PowerShares QQQ’s (QQQ, $86.56, down $0.25) with June put options.
The Russell 2000 gained a half-point, or 0.1%, to end at 1,108.55. The small-caps traded to 1,110 on the opening stampede but failed in their attempt to reclaim the 200-day MA (moving average), currently at 1,114.60. I mentioned the index needed to hold 1,102 and then 1,095 or it faced further risk to 1,075. Wednesday’s low checked-in at 1,093. This makes 1,075 and now 1,050 a good possibility if the bulls can’t reclaim 1,115 and then 1,125 over the near-term.
The S&P 500 Volatility Index ($VIX, 13.40, down 0.40) close back below 13.50 was bullish following a test to 14.49. The bulls held 15 again and the VIX ended right at its session low but until it gets below 12.50, I remain cautious.
There were a number of high profile earnings after Wednesday’s close and I will try to cover a few of them in the midday update. The portfolio has a good mixture of call and put options with near-term and longer-term dates until the market breaks out of or falls back into the yearlong trading range. Stay patient, the fireworks are coming.