Welcome Back, Volatility
There was a feeling on Friday that volatility was coming back into the trade and that players needed to get things done — whether it was a hedge, a roll, or a directional trade. This is something we have not seen in weeks. Accordingly, we are looking for volatility in the S&Ps to build on its current uptick and move back into the low- to mid-20s by the end of September.
This morning, S&Ps, which roll to the December contract on Thursday, were trading this morning at 1521.50, off 200 points. Taking a look at Friday’s action, most of the volume was done before lunch time. In terms of the components, breadth in the market was strong, and the sub-indexes were also strong. However, more stocks in the 500 fell than gained. The bulk of Friday’s action was seen in the decline from 1534 to 1519.
S&Ps have not closed above 1525 since April 11. If you remember last week, this is where a significant amount of volume was recorded on Thursday — between 1524 and 1525. In general, as long as S&Ps can hold support between 1519 and 1520.50, we think the upside still has a chance. We do have resistance between 1525 and 1529.50. It will be interesting to see if the market can handle trading above 1530, as we spent very little time there on Friday.
For the upside to gain momentum, we need an hourly close above 1531.50. If that happens, we’re looking for 1540. We have resistance between 1540 and 1542. Above that should lead us to 1548.90 to 1550.
On the downside, below the support between 1520.50 and 1519, we’re looking for a trade to 1511. We have support between 1512 and 1510. If we get below 1510, look for the selling to accelerate, and a trade down to the support between 1500 and 1498. Along the way, 1503 to 1504 could provide a stalling point. Any settlement below 1500 is a severe negative.
The NASDAQ on Friday saw an impressive sell-off from the 4160 level to 4056, all in about 30 minutes of trading. What was also impressive was the way the market then gathered itself and trended higher, closing up on the day. Expect this volatility to continue — especially because we are entering the Q3 pre-announcement period, and historically, the tech sector has a very difficult summer.
For today, we still have the upside target of 4220. In order to get there, the market must get through a key area between 4120 and 4135. If we can hold above this, then 4160 becomes important. Above 4160, we have resistance between 4175 and 4180. Above that, 4195 all the way up to 4225 should be resistance and an area of choppy trading. Above 4225, we would expect 4250 to hold and cap any rallies. However, if it does not, look for a trade up to 4295 to 4300.
On the downside, we have support between 4090 and 4084. Then, a key area between 4062 and 4045. If we trade below this level, look for the selling to accelerate and the market to trade under 4000. Support will be found between 4010 and 3990. Any close below 4000 is bearish.
The Dow is beginning to look a little heavy in the 11,300 area, as Friday marked the third time that index failed to close above 11,300. We continue to look for more sideways trading and more of the struggle in the index among the individual issues — with some stocks up significantly, while others are down significantly on the same day. Until this rectifies itself, we think the market will continue to trade sideways, choppy and with an upside bias.
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