The strength of the bulls is confirmed as of last week’s market performance. It has put the market in an overbought zone. But be very wary that this overbought zone can be extended for a period of time. Check out the weekly charts below.
Both the Dow and S&P is on an uptrend. RSI and EMA shows very clear indication of the trend. However, price is at the top of the channel. Nevertheless, as mentioned in the beginning of the post, prices can stay at the top of the channel and overbought zone for an extended period time in the period. It happened in Dec 2010 – Feb 2011. And in Jan 2012 – Mar 2012. If this is the beginning of another leg, we might have some way to go before we see a dip (depending on the stamina of the bulls).
The daily chart is singing in the same tune as the weekly. On the daily, pulls back are more frequent. Check out the circled zone on the daily chart above. But this does not necessarily endangering the mid term trend, unless it dips below support price point of the index.
The weekly VIX is in a downtrend, as indicated by RSI and EMA. It is near its low. In the past 5 years, whenever VIX is near its low, it tends to rally. But VIX can stay at its low for an extended period of time as shown by the circled zone.
The Daily VIX is in a down trend, in tune with its weekly chart. It is in the oversold zone, and price is near its previous low. For the past one year, in many instances when VIX daily chart was in an oversold zone, there can be a relief rally in $1 – $2 range.
Summary:
Mid term view:
Market is UP. It can stay in overbought over value level for an extended period of time depending on the stamina of the bulls.
Short term view:
For the trend to hold, resistance level should turn support (Dow 13250. S&P 1420). Meanwhile, possible dips might happen in the coming week due to prices are in overbought zone. Every dip could be a buying opportunity in an uptrend, so long it does not dip below the support level.
Be a cautious BULL in view of the VIX behaviour.
I’m still not convinced about the conviction of the bulls’ sentiment as yet. As soon as skepticism of the bull run turns really low, do not be shy to get more bearish. (Esp ff VIX gets below $13).
NOTE: All information provided “as is” for informational purposes only, not intended for trading purposes or advice.
