Yesterday was another Monday like we've seen previously. Futures were higher, the open saw some strong buying, but by the afternoon, the price action had a decidedly different tone, with the prices hitting session lows at the closing bell rang. In 2017 we saw two low of day closes all year. Four months into 2018 the market closing at session lows in nothing out of the ordinary.
Much like the Friday flops we've been seeing over the last month and a half, the afternoon swoon has come to the forefront. Remember amid the bull market rallies, the action would be very weak in the first hour of trade, before the buyers came in, bought the dip and sent the market higher well into the afternoon. It was buy the dip. The action in 2018 has seen a decidedly different pattern, with weakness coming in the afternoon.
The Afternoon swoon is what I like to call it. It's a concern, but we had similar price action at the start of 2016, when sell the rip was in vogue for 6 weeks. And then the market went up every month for almost two straight years.... so while the recent market action is clearly something to watch, it's far too early to say the top is in. The top calls... there have been countless top calls haven't worked out so well over the years.
After a sharp correction to start 2018, the market remains volatile. Clearly there is uncertainty on many fronts, with interest rates on the rise, threats of real inflation, global political drama, war... the list goes on. And as has been the case since 2009, every excuse to sell has ended up being a tremendous buying opportunity.
Right now the overall price action is narrowing within a wedge. I would have liked $QQQ to hit that $170 level, and it very well may. But for now, momentum is not tipping the markets hand. I'd much prefer to see a momentum shift, or the get that momentum solidly bullish.
momentum and price action shows clear indecision.
The VIX is under that 20 level, but stubbornly above that 15 level. Perhaps the days of the sub 10 VIX are over, however I think its setting up for a break lower and the range will be 10-12 into the summer.
Which brings me to this tweet for oddstats on Twitter. The VIX is under 16 with the market 5% off the 40 day high, which has seen prices higher 3 months later every time.
Sorry, bears, I have bad news.
Something extremely bullish happened today.$SPX closed more than 5% off a 40-day high, while $VIX closed under 16.
Exc. overlaps (since '90), this has happened 8x before today and it has been very bullish.
8/8 $SPX was higher in 3 months.$SPY pic.twitter.com/OdiUuqKIwZ
— OddStats (@OddStats) May 1, 2018
I agree. I think prices will be higher three months from now. But I don't think it will be a steady grind higher. I think short term we could see a test of support, before finally, weeks from now breaking out and ultimately hitting fresh record highs for the year.
The opening bell nears and I must depart. I'll have more on tomorrow before the bell.