Bearish, but Trading
A double top is now evident on the $SPX chart in the 2950 area. So, for now that is strong resistance. The question is whether we’re in a trading range or a stronger downturn is in store. There are three important support levels: 2800, 2720, AND 2650. I feel that sellers would become more aggressive as each of these were violated on a closing basis. So far, none have been.
Volatility continues to be a very interesting aspect of this market. This past week, $VIX spiked up again, generating another short-term buy signal. From an intermediate-term perspective, though, the $VIX chart is still negative because $VIX continues to close above its 200-day moving average.
For that and other reasons, we maintain a “core” bearish position, but we will trade short-term buy signals around it.
Lawrence G. McMillan, The Option Strategist, optionstrategist.com, 973-328-1303, May 15, 2020
Next Phase of Rally
Today’s session was nothing short of spectacular for bulls, and especially small-caps and cyclical issues shined due to the positive headlines. The Russell 2000 rose by more than 6% today and all of the key cyclical industries registered lofty gains, and the broad rally could mean that, thanks to the vaccine-breakthrough, stocks entered the next phase of the post-crash rally following last week’s pullback.
Besides the Russell 2000, a whole host of other reliable risk measures confirmed today’s sharp risk-on shift, with the Volatility Index (VIX) plunging below 30 again, credit spreads narrowed considerably, and Treasury yields surging higher across the curve.
Ken Berman, Canaccord Genuity Research, canaccordgenuity.com, May 18, 2020
This morning’s positive news of a possible COVID vaccine helped the major indexes surge, but it also revealed some of the crosscurrents that remain—today saw a big bout of rotation, as leading growth titles were mostly lower while the lagging (usually economically-sensitive) areas did well. Even so, we don’t advise getting too involved in the day-to-day news or gyrations; overall, there’s still more positive evidence than negative, with the intermediate-term trend still up (today’s action helped on that front) and just about every leading stock remaining in a firm uptrend. Given the crosscurrents, we don’t advise going hog wild on the buy side, but we continue to think holding your strong performers (maybe with some partial profits here or there) and looking for decent entry points on strong names is the way to go.
Michael Cintolo, Cabot Top Ten Trader, cabotwealth.com, 978-745-5532, May 18, 2020