Simpler Sentiment – Weekly Wrap-Up 12/30/16

Well, we are wrapping up quite an interesting year. The S&P 500 closed out last year at 2043 and we are right now exactly 200 points about that.

We kicked off the year by falling through January and February, hitting a low of 1810 on February 11. And the rally from the November election has been impressive. All of the major equity Indexes have put in new all-time highs in the last month.

Volatility has been quite subdued for the most part since those February lows. The 20 day historical volatility is closing out the year below 8 percent. The VIX sits at 14, having climbed from around 11 last week and now just below its 200-day moving average.

The market has seeming stalled out in light trade this last two weeks. And there is precedence for selling to kick off the New Year, so we want to be aware of that going into next week, regardless of your longer-term outlook.

Our traders are looking ahead with mixed feelings about the markets heading into 2017.

John: Although my outlook is bullish going into Q1, I am looking for some “shock and awe” violent selling during the first week of January. This has been a repeatable pattern over the last 3 years. It may not repeat again this year, but the same complacency and price pattern surrounding the markets into the end of the year is spot on. I’m going to end the year with short bets on the SPX and AMZN, with the idea of closing them out mid to late next week.

Chris: SPX is going to 2210 by next week.

Henry: I’m not wild about playing the counter-trend move and catch the flush, so will focus on the long side of pullbacks giving the first week of the year some time to settle.

Tony: The DJIA can’t trade 21,000 until it trades 20,000 first. If you’re not long, you’re wrong.

Carolyn: Now that we have finally backed off key extensions and are closer to some support decisions, I’m going back into a “bullish mode”. Those who know me however, also KNOW I want to see a buy trigger before you buy against any of my support zones/clusters!! Happy New Year!

David: We end the year with the S&P 500 only modestly below all-time highs and going into 2017, the bullish advance which brought us here does not look complete. In particular, the pattern up from February looks incomplete, and so does the move up from the post-Brexit low in June. There will be pullbacks along the way – some bigger and some smaller. The impression is that this two-week pullback is just a small one, but it is on the cusp of something bigger. Failure to regain the 2250 Voodoo snowline from near the immediate area would warn of something bigger – perhaps 75 -100 points off the high. Whether it comes now or later, a larger pullback is still expected to hold above the November low and the bullish trend maintained.

Happy New Year!!!

Chris McKhann

Chris McKhann

Chris McKhann has been involved professionally with the stock market for more than 15 years and specifically with derivatives for 12 of those. He started as a stock broker, but quickly moved on to options and futures trading. He spent some time as the Derivatives Product Manager for TD Ameritrade. He was the chief analyst and hedging strategist for OptionMonster. He has been an options trading educator and content provider for many years. His writing and analysis has been featured on Reuters, the Wall Street Journal, Forbes, TheStreet, CNBC and internationally. He has also designed and traded option and futures strategies for prop trading firms and hedge funds as well as managed accounts.