Thursday, December 06, 2007

Volatility and the S&P

Volatility and the S&P sit at two important tests; the S&P is nestled against 200-day MA resistance, while volatility holds at 50-day MA support. The relatively high volatility suggests a good deal of fear in the market which should be (contrarian) bullish for the S&P. However, the S&P sits at a (potential) major resistance level and with oversold stochastics for volatility combined with what looks to be a positive test of support at the VIX 50-day MA. It could be a rocky road down to August lows in a "Bah Humbug" kind of way for the Blue Chip average.

If this turn of events was to occur it should reveal itself over the next couple of days. I suspect the next major downward turn for the market won't occur until Volatility makes its way back to the 200-day MA.

So patient buyers might find some joy taking advantage of what could be a short, sharp, retreat for the S&P before rallying back to its 200-day MA (and possibly higher).

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