The S&P500 broke out today out of a two month consolidation, clearing recent resistance. meanwhile, the Nasdaq and the Russell 2000 continue to lag.

Spx_breakout

Of course, these things always seem to happen when I am in meetings all day . . .

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UPDATE: Janaury 25, 2007, 12:35 pm

Markets are getting pounded today, and it looks like we could give back all of yesterday’s gains and then some. Yesterday is looking like a Bull Trap.

I think that King nailed this one (read his comments below here). Yesterday was a mechanical market action, purposefully driven by futures buyers to trigger short stop losses and muscle the market higher.

Without that mechanixal trade, there was not a whole lot of buying interest to be found…

Category: Technical Analysis

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

20 Responses to “SPX Breakout”

  1. The question is whether this pushed the bullish sentiment to extreme levels

    See Monday’s RR&A Sentiment commentary here
    http://bigpicture.typepad.com/comments/2007/01/bullish_sentime.html

  2. emd says:

    this time it’s different….. obviously

  3. Gord says:

    In no way is there a bullish consensus out there. What exactly are you trying to get at with comment number 1? You highlight weekly/daily just how much negativity there is in the markets. The bull run continues, tech breaks resitance this week, and the shorts will grind out of their positions and be too scared to ever short again. Look out above!!!

  4. John says:

    Well the VIX (one indicator) is certainly down there pretty good. More importantly I would think the Risk/Reward ratio in this Market is at an extreme level. I’m looking for a topping process here in the next couple of months.
    How long has it been since we’ve had any meaninful correction (and how’s that length of time compare to historical norms?).
    Well, No Fear. Should the Housing Market implode and set things off to the downside the Geniuses at the Federal Reserve and Treasury (with full moral support from the Bush Administration) will ratchet up the money supply/increase liquidity/credit expansion to take care of things….
    For a while longer…

  5. Michael C. says:

    BR said: The question is whether this pushed the bullish sentiment to extreme levels.

    Seems to be a question that has been asked almost every week since last summer…

  6. lurker says:

    GS broke out to new highs so so much for my imaginary double top. Grrrrrrrrr.

  7. jagmohan swain says:

    Until the scepticism dies the rally will continue.

  8. phil says:

    Yesterday I heard one of the talking heads on CNBC pine about how long this correction will last. I laughed thinking this ‘correction’ has only been 14.87 points cash on the S&P over the last three days. I guess the jokes on me because I got caught short for a couple of points but I’ve got to think the bullish sentiment(BS) is very high.

  9. super-anon says:

    Where can I buy some volatility?

    I told my broker I want 60 ounces and he says I’m crazy and don’t know what I’m talking about. I don’t want futures – I want the real thing.

  10. Lauriston says:

    Reading most blogs (including mine) tells me there are far too many bears out there with short positions in the market. These are easy pickings especially now when everyone seems to have stop loss limits on their trades/investments. With central banks allocating more of their assets into equity markets (some Bloomberg.com report a few days ago, can’t find it), expect this rally worldwide to continue ad infinitum, ad nauseam, ad allshortsqueezum!!

  11. Lauriston says:

    make that Reuters, not Bloomberg.com. Story headlined “Central banks eye asset as well as FX shift” of Jan 9, 2007

  12. winjr says:

    “Well the VIX (one indicator) is certainly down there pretty good.”

    It’s not just “down there” – today it closed at an all-time low. I went to the CBOE site and found the following instances, since 1990, where the VIX closed below 10:

    01/28/94 – 9.94
    11/20/06 – 9.97
    11/21/06 – 9.90
    12/14/06 – 9.97
    01/24/07 – 9.89

    That’s it. Five times in the last 16+ years. (CBOE also keeps track of the old VXO method, which they have calculated back as far as 1986).

    The highest closing VIX (actually VXO, since VIX hasn’t been calculated back far enough)? Har! 10/19/87 – 150.19

  13. Clark Kent says:

    The VXO was below these levels in 1994 and 1995. Hmmm

    Now we have massive option selling looking for Alpha in a “low return” expectaion market. This is responsible for the cheap vols. It will slowly rise with the market.

  14. ac says:

    Going to be a nice selloff the next 2 days. Surprises await and they have not been priced in.

  15. winjr says:

    “The VXO was below these levels in 1994 and 1995. Hmmm”

    Not sure I understand what you’re saying.

    The VXO is calculated differently than the VIX. The 1/24/07 closing VIX of 9.89 -> if calculated under the old VXO methodology, the number is 9.05, which would be an all-time closing low for the VXO. So, no, the VXO of 1994 and 1995 was not below the VXO of Dec. 2006 – Jan. 2007.

    Also, the VXO never closed below 10 in 1995, and only did so in 1994 for a brief time (late January – early February).

  16. garyt says:

    Yes, the S&P broke out, but the SPY trust volume was relatively low. Just something to think about.

  17. Michael C. says:

    [sarcasm]I think I’ll stop trying to short the market until SP 1600. That’s a nice round number.[/sarcasm]

  18. King says:

    An S&P 500 Futures rally pushed the DJIA to a new high. The DJTA declined for the day. Some determined traders aggressively bought S&P 500 futures from the open until about 11 AM ET and then again from 1:30 PM ET until the close.

    This phenomena of stocks experiencing a sharp decline in a deteriorating technical condition only to have a sudden unexplainable S&P 500 futures rally that endures over an entire session without a serious pullback has occurred regularly over the past few years.

    This action not only negates or defers sell signals from trading models, it punishes short sellers and scares would-be short sellers. And this keeps the great game going.

    What you won’t hear on Bubblevision or in the fin media is that despite the DJIA record high the Street is experiencing one of its lamest Januarys in years – for both bonds and stocks. The amount of ‘real’ activity is very disappointing for a January.

    That’s why a few determined traders can push S&P 500 futures up all day, forcing the DJIA to a new high and there is little joy or excitement on The Street.

    The tea leaves of the economy and the new Congress are still too muddled for institutional money managers to read. So they are waiting and watching.

  19. jkw says:

    You can’t buy volatility directly, but you can buy it with options. When implied volatility is low, you can buy straddles cheap. You will make money if the implied volatility is too low and you move your straddle to a new strike price whenever you can profitably do so. This is the arbitrage game that in theory keeps implied volatility at the right level. Although this arbitrage relies on having an accurate forecast of future volatility, so it doesn’t keep prices in line as well as etf and futures arbitrage.

  20. winjr says:

    Oops. I missed a whole bunch o’ data from 1993 on the VIX:

    12/22/93 – 9.31
    12/23/93 – 9.48
    12/27/93 – 9.70
    12/28/93 – 9.82

    So, yesterday’s closing VIX was the lowest since 12/28/93, and not the all-time low. Total number of closes below 10.00 is 9, with 4 occuring in the last few months.