This past week has seen volatile moves in both directions. But there are several facts to the technical picture that have emerged as a result of all of this, advises Lawrence McMillan, editor of Option Strategist.
First, the S&P 500 Index (^SPX) failed to capitalize on the recent move to new highs. Then over the three-day weekend, President Trump once again announced a tariff threat. That resulted in the market throwing another “tariff tantrum” on Jan. 20, the first trading day after the Martin Luther King Jr. holiday. But just as that was unfolding, an agreement of sorts was reached on the Greenland issue, and the market exploded upwards.
From a technical standpoint, the SPX support at 6,840 was wiped out first, leaving the December lows at 6,720 as the next major support area. There is minor support just above there, near 6,800, which was the low of last week's trading.
As for resistance, it sits at the all-time highs of 6,945. Once again, SPX was unable to follow through after trading at a new all-time high on Jan. 13 – and then it unsuccessfully tried to break through on the upside over the next two trading days.
Breadth has been quite strong (even though there was a very negative day on Jan. 20). Both breadth oscillators remain on buy signals. While there were some nervous, almost bearish, fluctuations in the CBOE Volatility Index (^VIX) and its associated indicators, in the end everything has come out on the bullish side.
Still, the massive selling that took place briefly shows there are some large institutions ready to jettison stocks if they see a reason. The December lows at 6,720 are very important. We will continue to take new signals as they occur. Also, continue to roll deeply in-the-money options.
