9:00am (EST)
The market continued its recent zig-zag action on Monday with the bears starting the week off with a win. We knew yesterday’s momentum wasn’t going to be reversed so we focused on support which, once again, held despite some crummy headlines. We would love to have a day where we didn’t have to type in “Europe debt crisis” but until the picture becomes clearer, we are stuck.
The good news is that all of the uncertainty is coming to a head and we should get another major market wave higher or lower here soon. The bears have everything they need to spark a selloff, yet, the bulls continue to hold support while pounding away at resistance.
The Dow dropped 162 points, or 1.3%, to finish at 12,021. The blue-chips traded to a low of 11,940 after Wall Street’s lunch break but recaptured the 12,000 level by the closing bell. There is further risk down to 11,800 and then 11,600 while resistance remains at 12,200.
The S&P 500 gave back 19 points, or 1.5%, to settle at 1,236. The index reached a low of 1,227 but held 1,225-1,220 which is what we wanted to see. Further help is down at 1,200 while overhead resistance at 1,250 will be today’s focus.
The Nasdaq fell 35 points, or 1.3%, to close at 2,612. Tech fell below 2,600 and bottomed at 2,591 before rebounding to finish back above this level. There is further weakness down to 2,550-2,550 but we are expecting a push back towards 2,650.
The other index that kept us bullish was the S&P Volatility Index (VIX, 25.67, down 0.71) which actually declined nearly 3% despite the market pullback. The VIX traded to a high of 27.73 and never came close to cracking 30 despite a nasty day. We have been saying since October the VIX could hit the low 20’s which would get the S&P 500 to 1,275-1,300.
For those of you who are new subscribers and may not understand the VIX, it works like this. A “normal” VIX reading under 20 (bullish) indicates confidence and calm in the market while a reading above 30 (bearish) indicates nervousness and panic. Right now we are in the middle as the market tries to get back to “normal”.
Futures are showing a slightly higher open this morning: Dow (+61), S&P 500 (+8), Nasdaq (+18). Subscribers, check the Members Area for the updates.
