Simpler Sentiment – Weekly Wrap-Up 1/27/17

So we finally got DOW 20,000! Now what???

The S&P 500 and the Nasdaq 100 both hit new all-time highs this week. The SPX is heading into the close at 2292, off a few points on the day while the NDX sits at 5159, up a point on the day after hitting an intraday high of 5172.

The Russell 2000 small cap index is the laggard. It is up on the week, but failed to break last month’s high and is off 6 points on the day to 1369.

Volatility continues to come in. The VIX is down to 10.61, off its low of the day of 10.3, which would have been the lowest close since 2008. The VXST, the 9-day Volatility Index is down to 9.39, above its lows from the beginning of the month. While the VIX may seem low it is at a 66% premium to the actual volatility, with the 10 and 20-day historical volatility readings around 6 percent.

The trend is clearly higher, but it is very hard not to feel concerned about the downside here. Our traders are clearly looking at both sides of the argument…

Chris: If the /TF (Russell 2000 Index) stays under 1370, then the SPX is going lower.

Carolyn: Even though I think this market is in the position for a deeper downside correction, we are not seeing any evidence of this. So far we are only seeing minor short signals that don’t last. Typically, as soon as we pullback into symmetry support, the rally resumes. I will continue to set up both sides of this market for my subscribers, but have to suggest we trade what is in front of us and NOT get stuck on ASSUMING that a decline will unfold. I guess here I can call myself a cautious bull if we’re looking at the daily charts for that assessment!

Tony: Everyone is now looking at the VIX calling for a stock market top. I don’t trade excuses…I trade price and price tells me, “If you’re not long, you’re wrong.” Dow 21,000 is next.

Bruce: After the run-up and so-so earnings, I am short term bearish. Not expecting anything major but think upside may be limited in the short run.

David: We have an important, but nuanced, change in the S&P 500 view this week. After weeks of repeating that the move up from November lows was incomplete and expecting higher, we now have a new high. At this point we could see the move as plausibly complete and ready for a pullback. That doesn’t mean that it’s over, it can still go up; it only means that we can no longer insist that immediately up is likely. Long term the trend is still up and we expect overall higher with or without that larger pullback. If we do head lower, then 2250 should provide good support. The index has no business below 2193 and breaking that level would alter the long-term bullish view.

Tucker: The SPX has closed above the Voodoo Snow Line of 2292.87 for two consecutive days. The Squeeze indicator fired long on Wednesday. We may see a pullback today. However, the power of the Squeeze should help the upward trend continue next week.

This is a great time to brush up on limited risk option spreads and stock replacement strategies!

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Henry Gambell

Henry Gambell Vice President

Henry Gambell began his career as an IT professional with a passion for gambling, which by no accident landed him at John Carter’s door one fateful day in 2010. From there Henry went on to join John at Trade the Markets and helped contribute to the second edition of Carter’s book, “Mastering the Trade.”

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