Some three percent and four days removed from bulls rushing foolishly into April and trying to improve upon a massive 31%, six-month rally in the SP-500 (SPY), investors may be asking themselves the question, "Is it time to “Buy, Buy, Buy!!??”" For government workers and traders alike who can look past Friday’s disappointing labor report and realize “close enough” often gets the job done, especially when QE3 might be back on the table; the short-term technical stage looks interesting.
Over the past two weeks and while the SP-500 did a little of this and a little of that as it established three weekly dojis to cap off a Fibonacci-based butterfly pattern; our Weekly Outlook and Market Barometer columns kept to the mantra of warning traders of a likely pullback to challenge 1343 – 1371 in the SP-500. Friday’s Globex futures low of 1372.5 came within 1.5 points of the top of our minimum correction objective.
“Good Monday for bulls?” As noted in the most recent Weekly Outlook, as today’s anticipated gap down towards that top layer of support amounted to 2% of “zone” risk still remaining; we wrote we'd only be interested in the price action as a potential buying opportunity if a short-term overbought and fearful reaction in the VIX ($VIX) could greet investors along with some confirmation from the 60-Minute chart.
Figure 1: SP-500 ($SPX) Weekly Topping
Intraday and heading into the second half, first hour lows of 1378 have held above key support while highs set during the first sixty minutes have been narrowly broken to the upside. At the same time and as pointed out earlier today in our daily Wall Street Lunch Option, the VIX has been confirming the hold of technical support as the sentiment gauge rose to more than 17% above its 10SMA intraday.
To quote our article, “as a mean-reverting instrument, stretches in excess of 15% relative to the short-term moving average are typically prone to trader revision in order to neutralize the excessive behavior. In turn, a well-correlated SP-500 which moves opposite the VIX, would find a bid by investors quick to buy a pullback, particularly one off key support, due to that other horror known as the fear of missing out.”
“So, what are you waiting for?” We for one have to infer the action as decent for nibbling selectively from the long delta side and adjusting potential short deltas into more sturdy positions. That said, “Our fear” is a full-fledged test of the zone hasn’t yet been administered. Further, when we continue to look at the weekly view and admire where we’ve been and where we still; we see a seasonally kind big picture as having completed its “Best Six” from the October corrective lows, with likely very limited upside potential relative to the risks beyond a never-that-simple pullback.
Chris Tyler
Senior Options Writer, former Market Maker & fulltime Option Hedge Hog Advocate
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The information offered here is based upon Christopher Tyler’s observations and strictly intended for educational purposes only, the use of which is the responsibility of the individual.
