Strongerhead Weekly Financial Market Analysis 25 Feb 2013

VIX broke above $15 (to as high as $16.21) and came back to close below $15 (at $14.17). S&P 500 broke below 1500 and closed at 1515 by Friday. All been moving within the range that I drew (refer to Base on that analysis, you could have shorted on Tue, and long on Thurs when market was on short term oversold. The present market behaviour flavours the shorter term trades than longer term ones. The current volatility makes it harder to profit for the longer term traders looking for steady up move. What can we expect this week? Let’s see what the charts have to say.

On the monthly chart, the last 4 years bull run, prices tend to reach the top of its price envelope, and could stay overbought for months before a pull back. But as it goes higher, the duration of that kind of stay shortens. 7 months in 1st leg. 5 months in 2nd leg. 2 months in 3rd leg. How long do you think this current leg or rally can stay on the upper envelope? I am not saying it will definitely come down. But I just prefer to stay defensive when it comes to situation like this.

There have been 3 occasions on the weekly chart where prices touched the top of the price envelop and starts to pull back (as circled in red). Are we once again in such a situation? If it does, 1450 – 1480 could be a good buying zone.

On the daily chart, Dow has not been able to break above 14000 resistance level. S&P 500 has tested above the resistance but could keep itself above 1515. If both are not able to break and stay above their resistance level, this will signal we are at the top of the roller coaster ride.

VIX (fear index) weekly trend is still down but moving average looking to cross. If it does, this will signal a change of behaviour. Daily trend is ranging sideways, with prices near its resistance level. If it breaks out of the box, bad news for the bulls.


Mid term view:
Trend is up. 14 weeks into the up leg. A bit of space for the on Dow and S&P for further upward movement before prices reach top of its envelope again. Let’s see if Bulls are capable of doing that. If it does and stays above, we have to give the benefit of doubts that the bulls are still very much in charge.

Short term view:
If Dow & S&P 500 fails to break above their resistance level, and VIX break out of my boxed zone, i would activate my shortlist for shorts.

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NOTE: All information provided “as is” for informational purposes only, not intended for trading purposes or advice.