Stock Market Close to Finding a Short-term Bottom

By: Angelo_Campione

General Commentary: The system for the SPY is on a Buy signal 50%

The market was able to make some nice gains early on in the week, but then panic set in on Thursday and we saw all the gains wash away with a 3% drop for one session. Friday continued the drop except that we saw a recovery late in the session and this could now set up a nice bounce in the near term.

While the range for the week was 60 points, the market seems to be at a point of indecision and for now may be close to finding a short term bottom. A possible scenario is that we oscillate around here for a week and then head higher into options expiry.

SPX Chart - Bigger Picture

This wasn’t your average week, the range for the SPX was higher than the previous weeks high and lower than the previous weeks low. This pattern doesn’t show up very often on a weekly chart and is actually more of a bullish sign.

At this point we’d need to see a close above 1100 to confirm this sign, but as long as the 1030 region can hold, things are not overly bearish right now either.

SPX Chart - Shorter Picture

As you can see it was a wild week, the interesting thing is how we finished on Friday. In Japanese candle stick analysis this is known as a bullish hammer, where the bears not only get exhausted but the bulls regain control.

It’s likely that part of the reason why the market finished stronger was due to short covering also, the test will be on Monday to see if the bulls can continue the charge.

For the week ahead, support on the SPX is 1040 - 1050 and resistance is 1080 - 1090.

The VIX Picture

The VIX could be range bound here, which is likely to translate into a period of consolidation for the markets.

The likelihood is that the VIX has initiated a bottoming process that could still take some time to develop. What this means is that it’s not yet time to sell the farm but it could be in the not too distant future.

The VIX measures the premiums investors are willing to pay for option contracts and is essentially a measure of fear i.e. the higher the VIX, the higher the fear in the market place. It tends to move inversely with the markets.

Performance
We're using a starting capital of $5,000 and allocations are based on 25% of this or the remaining balance.

Feel free to email me at angelo@stockbarometer.com if you have any questions or comments.

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By Angelo Campione

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