L-O-W Volatility
On a rolling contract basis in the S&P futures, we are at the lowest volatility in the last four years. Not since October 1996, has volatility been this low.
Hence, the reason it does NOT pay to sell dips or buy rallies in this market. There has been a lack of follow-through in terms of immediacy.
This morning, S&P futures were unchanged at 1447. The end of the quarter is Friday. We will start to see very large volume ahead of this. Secondly, a negative call this morning on the optical stocks, which will affect JDS Uniphase
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PowerRating), Cisco
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PowerRating) and Nortel Networks
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PowerRating). That had been a hot sector.
For this morning, on the way up in S&Ps, we see 1450, 1453, 1455, 1456.50, a key at 1459, 1462.50 and 1465.50. Remember, between 1463 and 1465 is where the rally stopped on Monday. Suspicion tells us we have to get above 1455-1456 to get out of trouble.
On the way down, we see 1445, 1443.50, 1442, a double bottom at 1438, a key at 1436.50, and another a key at 1434. If we get through there, look out! …And watch for 1415.
The NASDAQ was trading unchanged at 3645. The market made a new low yesterday at 3580, which is a new low for the month. However, it did not make a new low in the cash because we were locked limit-down last Friday (but the cash remained open and traded down to 3505). Yesterday’s cash low was 3533.
The market had strong short-covering on the bell yesterday. Again, the rallies we are seeing are trader rallies/short-covering. They are rather vicious in nature and tend not to last very long.
The million dollar question is: Was that our successful retest of Friday? We don’t know that it’s wise to go out and make that bet right now. However, by the end of this morning, we’ll have a pretty good idea where the next leg to this move will be.
In NDZ, the key levels we see this morning are resistance from 3680 to 3705. If we can get above this zone, the upside starts to look pretty good. The next key level will be 3745 to 3752. Closing above 3752, the market has a clear run for a move back toward 4200, which might not be seen for a few weeks. The very top end in the short run will be 3850.
Support is seen at 3625 to 3615, then 3592 to 3580, which is yesterday’s low. Then we see 3550, at which the cash should be taking out its low from Friday and should be trading around 3500. This is critical. If we were to close above 3550, all long-side bets are off, and it targets a move down to 3000 in the futures. Below 3550, we see some support between 3475, our most recent low from August, and 3505.
For the Dow, yesterday we see the 10,550-area would be a good place to buy. We got down to 10,579. The market rebounded to a 10,628 settle. Look for yesterday’s low to be tested again before a move back up toward 11,000. Any settlement below 10,450 in the cash is negative.