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Monday, September 9, 2013

Daily update 9/9

SPX closes above the 50 DMA.  Here is the daily chart.

SPX closed slightly above the last swing high.  The last time it closed above the 50 SMA is failed to stay there.  What is it going to do this time?  Lets look at the SPY 60 minute chart.

The red line SPY crossed today was the high from the 8/15 big gap down.  So it got into that gap a bit today.  The green line was a support line I added back in July that was broken by that big gap down.  SPY stopped at that line today.  What happens now?  Is this area going to be major resistance or not?  I guess we will have to wait and find out.  Usually a second test of a gap has less resistance then the first test.  The last swing high got close to the gap, but did not quite get into.  Does that count as a first test?  It could be, but it might not be.  I don't really know.  Lets take a peek at the daily VIX chart.

The VIX is still in an uptrend with the intermediate trend indicator below price.  It is also still above its 18 SMA and well above the area of the 8/15 gap.  In other words there is a significant VIX divergence with SPX now.  This usually results in a big move for SPX.  However, it does not always go in the direction of the VIX.  If SPX keeps going up the VIX should start to melt down as option players reverse.  If SPX turns around then it is likely to take a tumble as the option players turn out to be correct and people long stocks bail.  The VIX actually rallied quite a bit this afternoon from the low of the day indicating some people were probably loading on some puts.  The question is are they smart or not.

SPX is a bit over bought on the short term.  It is also at a possible major resistance area.  On top of that we have a significant VIX divergence.  I would say a close back below the 50 DMA on SPX could set off a sizable sell off.  Possibly all the way to the 200 SMA.  As long as it stays above the 50 the bulls are in charge.


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