Much is being made of yesterday’s 1% pullback and last night’s news that China was contracting instead of expanding sent a shockwave to the overseas markets as China’s futures exchange was halted on the news. This led to a tanking U.S. futures market and a lower open on Wall Street but the bulls have battled back to nearly breakeven for the session.
We are somewhat surprised by the action as we thought a stronger test to support would come but we did feel like the indexes would hold. The first wave of support was expected as the 1% drop at the open was a given. The question would be if the second wave would be tested or if buyers would step in.
One index we have been harping on for clues of a continued rally or warnings of pullback is the S&P 500 Volatility Index ($VIX, 14.10, up 0.28). Besides our pinpoint accuracy targets for the indexes, the VIX has also given us great clues in forecasting the market’s action although the suit-and-ties continue to dismiss the index. We will have to see if today’s pop over 15 is a continued warning sign of the slight pullback everyone and their sister has been waiting for. If the VIX holds 15 and if the bulls can hold current levels; and end higher on Friday then there is a chance the indexes continue to set new highs into next week.
That is a lot if’s and’s and but’s for the bulls and the same case can be made for the bears as today’s attack has been wasted if the bulls can breakeven for today’s session. We are in a sweet spot as our portfolio is light and our current trades are on cheap options that stretch out into June and July.
We still have another week to go before May is over and we have mentioned we believe the current rally could extend into June before the bears make a serious attack. Today’s action has been scary for the talking heads but we have given you the clues to keep your emotions in check.
As we head to press, the Dow is up 4 points to 15,311 while the S&P 500 is off 5 points to 1,650. The Nasdaq is lower by 4 points to 3,459.
We have some more updates to go over with our current trades and we have a NEW TRADE so let’s go check the tape. Subscribers, hit the Members Area for the latest comments and action.