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The Stock Market's Next Move

By Jeff Clark
Tuesday, June 11, 2013

 Traders got the short-term bounce we were looking for last Thursday.
 
At the highs yesterday, the S&P 500 was about 45 points above where it closed last Wednesday. That's a 2.8% gain in just three trading days.
 
Now, of course, the question is... What's next?
 
To get that answer, let's take a look at the charts.
 
 First up is the Volatility Index ("VIX")...
 
The VIX is Likely Headed Lower Over the Next Few Weeks
 
The red circles indicate all the VIX sell signals – which are the same as broad stock market buy signals – we've seen over the past year. Notice how each time the VIX popped outside its upper Bollinger Band (BB) and then closed back below it, the index dropped nearly all the way down to its lower BB over the next few weeks.
 
If this chart is any sort of a guide, the VIX is likely headed lower over the next few weeks. And a falling VIX is usually good for rising stock prices.
 
 This chart of the McClellan Oscillator shows a similar pattern...
 
The McClellan Oscillator Over the Past Year
 
The McClellan Oscillator is a momentum indicator that helps point out overbought and oversold conditions. As you can see in the chart above, each time the oscillator dropped below its lower BB, the reversal rallied the chart all the way back up to its upper BB.
 
This indicator also suggests stock prices can work higher over the next few weeks.
 
 Finally, here's a look at the S&P 500...
 
S&P 500 Could be Bouncing to an All-Time High
 
The blue lines outline the rising channel the stock market has enjoyed for the past six months. The decline in late May merely tested the support line of that channel. Now stocks are bouncing. And based on the previous indicators, a bounce could take the index all the way back up to the resistance line of the channel and perhaps to a new, all-time closing high.
 
I haven't turned bullish here. And I'm not suggesting traders get overly aggressive on the long side. I still think that once the index breaks the support line of this rising channel, it'll get real ugly, real fast. But it's still too early to get aggressive on the short side.
 
The S&P 500 looks like it could make another push up toward new all-time highs before stocks roll over into a correction.
 
– Jeff Clark




Further Reading:

Last month, Jeff showed readers how he invests his own account. "My own portfolio," he says, "is quite simple..." Get the details – and his five tips for trading success – here: How I Allocate My Own Money.

In The Daily Crux
Market Notes
Bond investors are getting burned... big bond funds TLT and TIP sink to fresh 52-week lows.
 
U.S. bank uptrend continues as Wells Fargo hits a new all-time high.
 
Chile is stuck in a major downtrend... big Chilean stocks Cencosud (retail), SQM (mining giant), and Banco Santander-Chile (bank) are all sitting at multiyear lows.
 
Big Australian dollar fund FXA breaks down to a two-year low.
Market Watch
Symbol Price
Change
52-Wk
S&P 500 1642.55 -0.1% +23.9%
Oil (USO) 33.99 -0.5% +6.9%
Gold (GLD) 134.01 +0.6% -13.4%
Silver (SLV) 21.28 +2.0% -23.3%
U.S. Dollar 81.71 +0.0% -0.9%
Euro 1.33 +0.7% +6.3%
Volatility (^VIX) 15.53 +2.6% -26.9%
Gold Stocks (^HUI) 270.02 +0.2% -39.0%
10-Year Yield 2.22 +2.8% +35.4%

World ETFs
Symbol Price
Change
52-Wk
USA (SPY) 164.76 0.0% +26.5%
Japan (EWJ) 11.16 +1.5% +28.5%
Israel (ISL) 15.15 +1.1% +25.6%
Singapore (EWS) 13.20 -1.4% +18.4%
Taiwan (EWT) 13.62 -0.5% +18.8%
India (IFN) 20.20 -1.3% +15.2%
Russia (TRF) 14.40 -1.4% +10.0%
Canada (EWC) 27.69 +0.1% +10.9%
China (FXI) 35.25 -1.2% +10.4%
S. Korea (EWY) 55.81 -1.2% +5.2%
Lat.America (ILF) 39.26 -0.8% -0.3%
S. Africa (EZA) 56.82 -2.1% -8.0%

Sector ETFs
Symbol Price
Change
52-Wk
Construction (PKB) 19.80 +0.0% +54.3%
Media (PBS) 20.66 -0.2% +47.9%
Financials (IYF) 73.13 +0.1% +39.4%
Biotech (PBE) 29.25 -0.8% +36.0%
Health Care (IYH) 101.93 -0.1% +35.8%
Defense (PPA) 24.87 -0.4% +36.0%
Consumer Svcs (IYC) 103.36 -0.1% +32.1%
Industrials (IYJ) 84.85 -0.2% +30.0%
Water (PHO) 22.61 -0.6% +29.1%
Alt. Energy (PBW) 5.46 +1.7% +31.8%
Retail (PMR) 30.88 +0.3% +28.4%
Transportation (IYT) 113.37 -0.1% +26.2%
Telecom (IYZ) 26.36 +0.6% +25.6%
Big Tech (QQQQ) 73.44 +0.1% +18.3%
Insurance (PIC) 19.01 +0.1% +18.3%
Software (PSJ) 30.21 +0.3% +18.9%
Nanotech (PXN) 7.05 +0.4% +16.2%
Real Estate (IYR) 68.00 -0.8% +13.5%
Basic Mat (IYM) 71.20 -0.2% +13.9%
Semis (PSI) 16.11 +0.4% +12.0%
Utilities (XLU) 37.91 -0.2% +7.1%

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