What a week, all this volatility, and the SPX closed practically unchanged on the week. Earlier this week we wrote about the possible reversal:
Believe it or not, but NASDAQ is making the biggest bullish candle in a long time. This was not in investors’ minds when we traded 2% lower earlier in the session.
SPX, NASDAQ and all other main indices reversed big from the lows. Our short-term take was a reversal, but the short-term direction from here is not clear.
Below is the chart of the SPX this week. Note how the selloff was met with “controlled” buying. Several reports from the main banks have shown that buybacks were very big during Monday and Tuesday, providing the bid markets needed.
With so many bearish smart fundamental investors it is easy to get bearish when markets are pointing down, but do not be fooled. Markets seldomly go down in a straight line.
In our view, both the SPX and NASDAQ are stuck in choppy trading without much trend. Getting too excited, either way, seems the bad way to treat current market dynamics.
The SPX bounced on the trend line and ended the week flat. The set up here looks more to be a wait and see approach than chasing the bounce, while it still feels too early to short the bounce. Short term supports are 2900/2880, while resistance is at 2960 and then the big 3000 level.
VIX shot up way too high during the sell off and has since the Monday panic been in full retracement mode. Volatility is not cheap nor expensive at these levels.
While we can understand the bearish fundamentals of the current markets, we feel that a big break out is still pre mature. There are simply too many bearish investors out there. A proper move lower and a break down needs to have much less fear among the crowd.
Source, charts by Tradingview