Here’s what to look for in the action today…
General Trends
Today marks the end of the seasonally strong period for stock prices.
Starting next week, the winds shift bearish. That doesn’t mean stocks are going to start falling right away. But it is going to make it more difficult for the market to rally.
The S&P 500 still hasn’t made it up to my 2411 minimum upside target. The index got as high as 2404 this month. Perhaps today will be the day. But the bulls are running out of time.
Here in the Market Minute, we take a look at the setups in the broad market and plan for the trading day ahead.
Let’s start with stocks…
Stocks
Yesterday’s early morning swoon below the 2390 level did cause some technical damage to the S&P 500. On a positive note, the index did recover and close above its 9-day exponential moving average (EMA).
So, the momentum remains bullish. But, in a truly strong market, it wouldn’t have violated the 9-day EMA – even on an intraday basis.
Conditions are still bullish. But they’re bullish in the same way that a biscotti is a dessert. Nobody really chooses a rock-hard almond cookie as a dessert. But, if the choice is that or nothing, then we’ll take the biscotti.
For today, we’ll stay bullish. But it’s… well… a biscotti kind of bullishness.
The S&P has support at 2390, 2381, and 2373. Resistance is 2403.
Gold and Gold Stocks
The gold sector has had a good week. We thought adding a little more gold exposure on Tuesday would be a good, low-risk idea. And so far, so good.
Many mining stocks have rallied back up toward their 50-day moving average lines. So we may not get much more upside from here in the short term. Instead, traders should expect a few days of back-and-forth action.
Here’s an updated look at the chart of the VanEck Vectors Gold Miners Fund (GDX)…
There’s not really a tradable pattern here. The chart shows a wide range between support near $21 and resistance at about $24.
Buying GDX near support did indeed prove to offer a low-risk trade. But there’s nothing yet to suggest the gold sector is ready to race away to the upside. GDX needs to get above the resistance of its 50-day MA at $22.67. Then it has stronger resistance overhead at $24.
For me, this chart would look better if GDX would come back down and form a higher low before breaking above its 50-day MA.
I’ll update Delta Report readers on these trends throughout the day on Jeff Clark Direct.
Best regards and good trading,
Jeff Clark
P.S. Thanks to all who’ve sent in thoughtful feedback and questions. Keep it coming.
Today’s reader asked about speculating on the VIX. Here’s why I don’t trade it anymore, and what I do instead…
Mailbag
Comment: Jeff; I have been using your service with good success. You monitor the VIX to forecast market moves. Is there a good way to actually speculate on which way the VIX is headed? I have used VXX to try and take advantage of VIX extremes (usually low extremes). VXX is somewhat frustrating as it often does not mirror moves in the VIX. Can you address ways to directly speculate on VIX or is it a bad idea to begin with? Many of your readers might find the info helpful. – Rick
Jeff's response: VXX [The iPath S&P 500 VIX Short-Term Futures ETN], and all the other volatility-based ETFs and ETNs [exchange-traded funds and notes], use futures contracts and options to attempt to mimic the action in the VIX. By their nature, futures and option prices often already discount the possibility for a move in the VIX. So these vehicles are lousy at tracking the VIX – which is what they were supposedly created to do.
I traded VIX options maybe ten times before I swore them off. I think I profited twice. The VIX almost always moved in the direction I expected it to. But, because of the European-style feature of VIX options (read my essay on VIX options), I lost money.
I don’t mind losing money when I’m wrong on a trade. But I really have a hard time taking a loss when I’m right.
So, I don’t trade the VIX anymore.
Instead, I’ll trade an S&P 500 ETF in response to extreme moves in the VIX. For example, when the VIX rallies above its upper Bollinger Band – an extended condition that usually occurs during a significant market decline – I’ll look to buy an S&P 500 ETF in anticipation of a VIX buy signal – when the VIX closes back inside its Bollinger Bands.
When the VIX drops below its lower Bollinger Band – an extended condition that usually precedes a strong market correction – I’ll short an S&P ETF, or buy an inverse S&P ETF in anticipation of the VIX generating a sell signal when it closes back inside the bands.