The S&P500 and Nasdaq tested, traded through, and closed above their 50-day moving averages aided by a huge reversal in Apple, the rest of tech, and an impressive late day broad market rally. Another positive was the behavior of the VIX, which fell 3.8 percent from yesterday’s close.
The key question is “was that it?” We’re not sure, but doubt it. With zero percent interest rates and the 10-year at 3.10 percent the equity markets are holding money hostage as there is no place to go. Today felt like a wasted day at the Circle J Ranch as traders seemed to be getting short and buying back stock from each other. Nothing was really resolved.
Nevertheless, one must respect the action and look to history for direction. The chart below shows that on November 29, the S&P 500 similarly pierced its 50-day by 0.31 percent intraday only to close 0.88 percent above the 50-day. The VIX also fell 3.1 percent that day. This set up the 12.85 percent sling shot rally into mid-February.
Today the S&P 500 traded through its 50-day by 0.40 percent and closed 0.39 percent above the 50-day. The VIX fell 3.8 percent on the day. We doubt the S&P is done with the 50-day and ready to rally likes its Novie 29. Recall, QE2 was just launching back then and is now ready for the dry dock.
We’re respectful of today’s action, but we think the jackhammers will be back banging on the 50-day at least a few more times before the market sounds the all-clear whistle, which you know it never does. Stay tuned, friends. (click here if chart is not observable)