S&P 500 Nears Inflection Point as Volatility Stirs

The markets should peak soon. I am eyeing February 18-19, as the S&P 500 Index and NASDAQ Composite still could push a bit higher to satisfy daily Demark counts.

Risk/reward is poor so look to sell any rally this week.

S&P 500 ETF (SPY) Trading Outlook (3-5 Days): Mildly Bullish, Risk/reward poor

The $393 price level looks important and I’m skeptical that $400 will be exceeded. I’m looking to sell into the $393-$397 area.

Price support resides at $387.50, and a move below this level would be a warning. Any break of $385 will bring on additional selling.

All that said, much of the market’s performance next week will depend on market volatility… and when it arrives. Let’s look at the VIX Volatility Index.

vix volatility index price support level bottom low chart image february 15

The VIX Volatility Index is still diverging positively, but a flush looks possible on a 2-3 day basis before a bottom.

Implied volatility has held up in pretty resolute fashion lately as the rapid ascent has come amidst all the turmoil has not resulted in the kind of decline in implied volatility most would expect. VIX remains well over last Feb lows, and i view this technically as a positive for IV, not something that necessarily needs to drive “vol” down to new lows, just because S&P is hitting new highs.

However, the last couple days of market “shuttering” has not really resulted in much overall damage, and VIX has given some signs that a final flush might occur in the next couple days. One should be on the watchout for this, as it should present a VERY attractive opportunity to buy implied volatlity for periods going out til June and for the aggressive, into March Expiration. Any big pullback in “vol” Friday into next week is something I will be looking to take advantage of, in adding to June VIX call spreads.

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Twitter:  @MarkNewtonCMT

Author has positions in mentioned securities at the time of publication. Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.

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