Is The Market Rally Ready To Shift Into Reverse?

Shift to reverse

Shift to Reverse

Are stocks off to the races or set to reverse course?

Analysis and Outlook for the QQQ (Nasdaq 100 ETF):

The Qs are rebounding sharply from their Christmastime low to today’s high. We see shorts getting squeezed and the weaker hands being weeded out.  Tech stocks have steadily moved through resistance to reach higher levels of supply. In the aftermath of December’s waterfall decline, they’ve driven a good distance up in a short amount of time.

A big boost in central bank balance sheets, in large part courtesy of stimulus by the People’s Bank of China, has pumped in the liquidity needed to stave off impending disaster for investors.  The key question now is, “How high are we going to go?”

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What’s Going On (In The Market Now)?

whatsgoingon

by Steven Sarnoff

The extended record-setting move up in the venerable S&P 500 is making any self-respecting seller “wanna holler and throw up both my hands,” and many of the weaker shorts are capitulating.  This has my contrarian senses tingling.

Let’s have a look at what’s going on in three important markets, stocks, interest rates, and the US dollar.

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I $SPY Key Resistance, FYI:

ispy

by Steven Sarnoff

Corporate earnings beats, particularly in the Dow industrials, are propelling panic buying. Central bank monetary largesse and money moving out of bonds (pushing 10-year yields up), along with investor hopes for tax cut legislation is also juicing the market.

I try to tune out the noise and focus on what the character of the behavior of market price movement is saying. Note, in my daily candlestick chart below, the appearance of a “hanging man” followed by a strong negative black candle just as the venerable index is nearing the apex of a bearish rising wedge pattern. This is telling us that buyers are approaching exhaustion and sellers are poised to strike back.

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Volatility Returns And Is Percolating

percolate

by Steven Sarnoff

While contemplating the current condition of the stock market this morning, I glanced at my coffee cup and the idea for this blog post came to mind.  The CBOE (Chicago Board Options Exchange) Volatility Index (VIX) measures market expectations of the implied volatility of S&P 500 index options.  In plain terms, the VIX measures volatility (fear).  Having a good read on investor fear, or lack thereof, can be a valuable tool for traders.

There is a correlation between a lower VIX and higher stock prices and a higher VIX and lower stock prices.  Options Hotline subscribers know I’m fond of saying, “Smart traders use the absence of volatility to prepare for its return.” Continue reading