Daily Stock Market Equity and Options Trading Commentary

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Friday, March 27, 2009

Give The Bulls 830 on the S&P 500 & Spark a Rally to 860

I think if we can hold above 830 Friday we may see 860 before we know it. The next major resistance is around 860 on the S&P with nothing in between 830 and 860). I said if we get through 810 we'd see 830, and we are at 832. Now if we can hold above 830 the charts are showing next resistance at 860. If we happen to close below 830 Friday with light volume, I still think we could get to 860 within the next week given the VIX at these levels. However if we get below 830 on heavy volume, we will have to see if we can hold at 810. The chart below shows that next major resistance is around the 860 level on the S&P. We'll see if we can hold above it or get closer to 860 Friday (click chart for larger more clear view).

Another thing to watch for is the VIX dropping below 40, when this decreases it indicates a less volatile market, and could show signs of stabilization in the markets. The option premiums are a bit less, because volatility plays a major role in options pricing, but it is good overall for the stock market. Anything above 30 is historically high, but given it was almost 90 in late October, it is certainly showing signs of a more stable market. The last time the VIX closed below (key word is closed, because it went below 40 intraday on March 18th and 19th before closing back above 40) 40 was January 28 2009, the S&P traded as high as 877.86, and VIX traded as low as 33.76. However the S&P closed at 874.09, and the VIX closed at 39.66. If we can close below 40 I think that will be a relatively good sign if we do not sell off like the days after January 28. Both 3 month charts can be seen below (click charts for larger more clear view).

3 Month S&P 500 Chart. Look at January 28, our last highest trading day and close, when it was the last time the VIX closed below 40.

Look how the 50 and 200 day moving average trend lines are converging with the 10 day moving average in the middle to the lower side. Looks like we broke below the 200 day moving average today. Next support is at 38.79, if we get below that, we could see a drop to the next support at 33.76 or the low set on January 28. This could indicate a rally in the S&P to levels above 860 (875 range)... Call me a wishful thinker...

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Anonymous said...

First time poster. I really appreciate your comment on the overall market and learned a lot from your blog. Do you really think SPY will reach new short term high (over 832) before went down (some profit taking)? Again, March 9 SPY closed at 67.65 vs now 81.78.

Option Maestro said...

Thanks for dropping by my blog. On a TS basis the charts show that if the SP 500 gets above 830 and can hold we'd reach 860 before any major resistance. However if we close below 810 today we could be going lower to 750. Depending on today's volume has a lot to do with where will go. If volume is light and we close below 830, there is still a chance of getting back to 860 before we run into any resistance.

Anonymous said...

Now it broke the resistance of 810 at 786. VIX is above 45. Do you think S&P will go back to 750 with the earning season starting April 7, 09?

Option Maestro said...

Yes, I think we will get back to 750, and possibly retest the lows in April. We first need to test resistance at 765, and then if we get through that, next resistance is at 750. We'll see how we hold at 750 by Friday's numbers coming out. Unemployment estimate is expected to rise to 8.5% for March from 8.1% in February. If we can hold above 765 or even 750 by Friday I would take it as a better sign. However if we miss the estimate and have a greater than expected unemployment number for March, with revisions made to February and even January, we could retest the S&P 500 lows, and even set new lows.

ahchoi said...

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