01/21/2010 Market Recap: Watch VIX

TREND INDICATOR MOMENTUM INDICATOR COMMENT (Click link to see chart) Long-term 3 of 3 are BUY     Intermediate 2 of 3 are BUY 3 of 6 are OVERBOUGHT SPY ST Model is in buy mode Short-term 1 of 1 are SELL 5 of 6 are neutral

BULLISH 4.1.0 S&P 500 Large Cap Index (Weekly):  H&S Bottom text book target is 1246. 6.2.0a VIX Trading Signals (ENV): *Potential buy signal to be triggered. BEARISH 4.0.4 Dow Theory: Averages Must Confirm: Multiple resistances and breadth very overbought. 1.0.2 S&P 500 SPDRs (SPY 60 min): 15 unfilled gaps.   01/14 Market Recap: II and AAII survey show extremely high bull to bear ratio. 1.2.0 INDU Leads Market: *INDU breakdown below Dec 31 lows, suspect SPX might follow. CONCLUSION

SPY SETUP ENTRY DATE STOP LOSS INSTRUCTION: Mechanic signals, back test is HERE, signals are HERE.) TRADING VEHICLE: SSO/SDS, UPRO/SPXU ST Model *Stopped out of long position with gain. Reversal Bar     NYMO Sell   VIX MA ENV     *Long if VIX falls into it’s MA Envelope and SPY close > open.

OTHER ETFs COMMENT – *New update, they may not be mentioned in the report. Click links to see more details. IWM & QQQQ 8.2.9a QQQQ – 2009  - 8.2.9h QQQQ – 2002: Seasonality is bearish until the end of January. EMERGING 1.4.0 Shanghai Stock Exchange Composite Index (Daily): Big red bar means more downside ahead. FINANCIALS 3.5.0 Financials Select Sector SPDR (XLF Daily): Could be a Bull Flag in the forming. REITS OIL & ENERGY GOLD 3.3.0 streetTRACKS Gold Trust Shares (GLD Daily): Lower high could be confirmed, looks bearish. DOLLAR 3.1.0 PowerShares DB US Dollar Index Bullish Fund (UUP Daily): Could be H&S Bottom in the forming. *But a filled black bar formed today which may mean a short-term pullback. BOND 3.0.0 10Y T-Bill Yield: Could be a Bull Flag. So yield could rise while bond should fall.

INTERMEDIATE-TERM: UPTREND INTACT WITH STRONG SUPPORT BELOW

The sell off today didn’t change anything. Although in today’s After Bell Quick Summary, I think there might be another down leg, but as illustrated in chart 0.0.3 SPX Intermediate-term Trading Signals, a huge consolidation area below should serve as a strong support which is unlikely being penetrated on the very first attempt. So let’s define the sell off today as a short-term pullback first. The intermediate-term uptrend is intact.

 

SHORT-TERM: PAY ATTENTION TO A POTENTIAL VIX BUY SIGNAL

I have no solid proof to talk you into believing whether this is a short-term pullback or the beginning of an intermediate-term downtrend although the feeling is not good, as the sell off was very strong and so was the volume. I think char 2.0.0 Volatility Index (Daily) is worth of a close attention. If still this is the old same, no later than next Monday (don’t you forget the very very bullish Monday?), we should see a huge rebound. While if until the next Monday we don’t see any meaningful rebound then most likely this time is different. Until then, again, let’s define the sell off today as a short-term pullback first.

6.2.0a VIX Trading Signals (ENV), take a look at the VIX MA ENV buy setup. No buy signal yet today. As usual, I just report whatever info I gather, it  doesn’t mean that I imply that you should buy this dip. In fact whether this is a buyable dip, I have no idea.

The back test summary of the above setup is posted below. Please note, in order to trigger a buy, VIX must fall back into it’s MA envelop, besides there’s one additional condition: SPY Close > Open.

 

INTERESTING CHARTS: NONE