Saturday, February 11, 2012

Market Forecast for next Week for the S&P500

Monday Feb 20,
New Swing Position Short: 1367.75

First Target : 1358

Analysis/Setup : Available upon request.

Tuesday , Feb 21,

First Target filled as expected and according to trade plan.
Second Target 1350.25 ( VPOC AND HVN )

Thursday, Feb 23 ,Second target filled as expected !

I believe that a move below the 1330 level is more likely than not, and here is some of my reasoning. First, the VIX action has been interesting, with the increasing VIX on the Wednesday and Thursday up days for the market.

 It is unusual to see the VIX rise 2% on two successive sessions in which the SPX is also rising and this usually leads to market weakness in the short term. The VIX action on Friday also seemed way out of proportion to the action of the SPX; the VIX jumped 12% while the SPX dropped a mere 0.7%. This seems to imply that traders had been overconfident and were rapidly trying to hedge their bets.

Looking at several market leaders is also interesting. Three leaders in particular grab my focus: The Russell 2000, the Financials, and the SOX. When these three leaders are all leading in the same direction the SPX usually follows. And it seems apparent that at the moment all three of these leaders are weakening quicker than the SPX, suggesting further weakness is in store for the SPX.

The Transports have been acting weak over the past several days and with the S&P futures and cash struggling to take out their July 2011 highs (futures-1354.50; cash-1356.48) we are now seeing the entire market start to pullback. Thursday thanks to $AAPL the Nasdaq futures (the market’s upside leader) took the market from its lows straight back up to its highs but unable to get the S&P cash and futures above their July high and unable to get the Transports back above their 10 day moving average (their 10 day moving average was the stone cold high of the day). This is another reason why I think the correcton is not over.Is the market correcting to the Transports or are the Transports going to correct to the market? I have been wondering which one of the two was going to happen and now it looks like the market is correcting to the Transports. I see the rally as only being as strong as its weakest link and right now the weakest link is the Transports. Friday they were poised to open below their 20 day moving average and their daily up trend. This is the first time this year that one of the major Indices is poised to do that.

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