Monday, December 19, 2011

Flash of positive divergence as Santa digests "bad news" for stocks: Charts views

This afternoon stocks added a "bonus round" down when rumors swirled about increasing capitalization requirements for banks. As if concerns over that hadn't already been priced in, at least somewhat. But positive divergence showed up in the McClellan Oscillator (first chart below). There may also be rising trendline support in the SPX chart, at least temporarily (although my trendlines aren't as rigorous as Andre Gratian's). Somehow, the stage seems set for a bounce. Sure, there are too many eyes looking for a Santa rally - even though classically, that doesn't happen until the last several trading days of December and into the first couple trading days of January. I'm just pointing out that there are signs that the stock market will bounce. It'll be after the next good bounce that we must be braced for the hard down presaged by the decline in the McClellan Summation Index.

Another option compared to either rally up, or miserably down, would be choppy until the SPX touches that trendline. From a Fibonacci perspective, regaining and moving above 1209 in SPX could be enough to mark a good bounce. Whenever we do see the rally, it's likely to see resistance at 1234-1237 and 1241 in $SPX.

I've added charts of VIX and US Treasury bonds ($USB, which can be traded indirectly via the ETF, TLT) below. These days, $USB and TLT seem to be doing the work of VIX - they're doing a more consistent job than VIX of moving inversely to the stock market. Probably has a lot to do with expiration of VIX futures and the end of the year. $USB moved closer to the $150 projection by tagging a new high at $146. We'll just have to see if it jams straight up to $150, or chops some first.

Meanwhile, the VIX remains dallying under its 200-day moving average. I do agree it'll move up. Question is whether it'll rise over the 200-day MA without poking another low first. And as part of the potentially positive backdrop, look again at the SPX chart. The selling volumes aren't overwhelming the buying volumes too bearishly - so there's the glimmer of positive divergence that's showing in the McClellan Oscillator, for the short-to-intermediate term anyway.

No comments:

Post a Comment