Last week here, I outlined reasons why there was likely more downside than upside to be had last week. In the end, there wasn’t as much downside as I had anticipated, but anyone that chased what looked like a breakout early in the week likely ended the week in disappointment.
From last week: “In sum, based on the length of time the market has remained overbought, the technical resistance above and the open interest, next week favors limited upside versus potential downside of over 2%. A shortable pull-back into support the first half of the week would be a good set-up to buy toward the end of the week or early next week. Note that there is only four trading days next week as markets are closed for Good Friday.”
Next week is quarter end and it would be remiss of me to not acknowledge the possibility of a chase for performance. Many, if not most, asset managers are underperforming an essentially flat S&P 500. Thus, given that recently every dip is quickly bought, breadth has kept up on an intermediate time frame, higher highs and higher lows have recently been made, and there may be a chase for performance, it would seem the bulls have the edge going into next week. However, keep an eye on internals with any further price advance to make sure therein lies confirmation.
Breadth: Since the S&P 500 February bottom, I have written that breadth has kept up with new highs and that it was considered bullish. There was some very mild deterioration last week, but that has to be taken in context of a week that closed lower. The bottom line is that there hasn’t been any concrete signals yet that constitute being bearish; however, some caution signs may be slowly creeping in.
SPX stocks at 20-day highs: In an uptrend, a reading under 5% begins to get into short-term oversold territory. In fact, since February 20-day lows have only been under 5% twice (2/10 & 2/11 – the latter of which marked the bottom). Thus, the current reading or one that gets a bit worse next week would likely be sufficient for a further upside or at the least a bounce.
SPX stocks at 20-day lows: This has been muted throughout the rally from the February lows helping to confirm the strength of the rally. It has only recently begun to show tiny signs of movement. For now, it is not much, but pay attention to any further spikes. Typically when spikes begin to come more frequently and with higher highs, it is a caution sign that the rally is nearing its final legs before a more substantial pull-back.
SPX 52 week highs minus lows: After reaching it’s highest level since April 2015, 52 week highs minus lows are just beginning to back off. Given that SPX pulled back last week this is par for the course and nothing to be wary of yet. If price continues higher in the coming weeks without higher highs in this measure, it will be providing you important information that near term weakness (not a crash) may be on the horizon.
SPY open interest: Given there is quarterly options on indexes and they expire on the 31st, I currently give little credence to the weekly open interest because it will likely change early in the week. For those that want to see it, below is the quarterly expiration (which I have very little experience tracking so take it for what it’s worth) and the weekly below that. I will likely update the weekly open interest via twitter after quarterly expiration. 
SPX levels for short-term traders:
- Above 2036 and under 2056 – neutral to bullish.
- Above 2056 – bullish with potential targets of 2077 and 2090 (potential short-term blow off area if it happens next week).
- Below 2036 and above 2022 – neutral to bearish
- Below 2022 – short term bearish with potential targets of 2007, 1995-2000, and 1980.
Final thoughts: Given quarter end on March 31st and a market that has shown immense strength in both price and internals since the February lows, bulls have the edge. The possibility of further highs next week leaves buying an early dip favorable as well as taking breakout plays (if there is no dip) with the caveat that taking profits quick or having a very close stop is recommended. This is not to say that any breakout will likely end badly because there is always the potential for a sideways consolidation leading to higher prices for a while longer; however, not getting too comfortable on the long side for short term traders would be wise at this point. Furthermore, a close below 2022 or a rip higher next week without internal confirmation would indeed give the bears an opportunity to take control if they choose to step-up.
*Much of next week for short term traders really is a wait and see game. For those looking for more guidance with intra-day analysis, trade set-ups and real time trade alerts consider subscribing. Members receive two thorough posts over the weekend along with the intra-day analysis and trade alerts throughout the week. For a sample of last weeks weekend posts see Open Interest for Expiration 3/24/16 and Set-ups and Game plan for 3/21/16 which I have unlocked.
Performance Chase?
Last week here, I outlined reasons why there was likely more downside than upside to be had last week. In the end, there wasn’t as much downside as I had anticipated, but anyone that chased what looked like a breakout early in the week likely ended the week in disappointment.
From last week: “In sum, based on the length of time the market has remained overbought, the technical resistance above and the open interest, next week favors limited upside versus potential downside of over 2%. A shortable pull-back into support the first half of the week would be a good set-up to buy toward the end of the week or early next week. Note that there is only four trading days next week as markets are closed for Good Friday.”
Next week is quarter end and it would be remiss of me to not acknowledge the possibility of a chase for performance. Many, if not most, asset managers are underperforming an essentially flat S&P 500. Thus, given that recently every dip is quickly bought, breadth has kept up on an intermediate time frame, higher highs and higher lows have recently been made, and there may be a chase for performance, it would seem the bulls have the edge going into next week. However, keep an eye on internals with any further price advance to make sure therein lies confirmation.
Breadth: Since the S&P 500 February bottom, I have written that breadth has kept up with new highs and that it was considered bullish. There was some very mild deterioration last week, but that has to be taken in context of a week that closed lower. The bottom line is that there hasn’t been any concrete signals yet that constitute being bearish; however, some caution signs may be slowly creeping in.
SPX stocks at 20-day highs: In an uptrend, a reading under 5% begins to get into short-term oversold territory. In fact, since February 20-day lows have only been under 5% twice (2/10 & 2/11 – the latter of which marked the bottom). Thus, the current reading or one that gets a bit worse next week would likely be sufficient for a further upside or at the least a bounce.
SPX stocks at 20-day lows: This has been muted throughout the rally from the February lows helping to confirm the strength of the rally. It has only recently begun to show tiny signs of movement. For now, it is not much, but pay attention to any further spikes. Typically when spikes begin to come more frequently and with higher highs, it is a caution sign that the rally is nearing its final legs before a more substantial pull-back.
SPX 52 week highs minus lows: After reaching it’s highest level since April 2015, 52 week highs minus lows are just beginning to back off. Given that SPX pulled back last week this is par for the course and nothing to be wary of yet. If price continues higher in the coming weeks without higher highs in this measure, it will be providing you important information that near term weakness (not a crash) may be on the horizon.
SPY open interest: Given there is quarterly options on indexes and they expire on the 31st, I currently give little credence to the weekly open interest because it will likely change early in the week. For those that want to see it, below is the quarterly expiration (which I have very little experience tracking so take it for what it’s worth) and the weekly below that. I will likely update the weekly open interest via twitter after quarterly expiration.
Final thoughts: Given quarter end on March 31st and a market that has shown immense strength in both price and internals since the February lows, bulls have the edge. The possibility of further highs next week leaves buying an early dip favorable as well as taking breakout plays (if there is no dip) with the caveat that taking profits quick or having a very close stop is recommended. This is not to say that any breakout will likely end badly because there is always the potential for a sideways consolidation leading to higher prices for a while longer; however, not getting too comfortable on the long side for short term traders would be wise at this point. Furthermore, a close below 2022 or a rip higher next week without internal confirmation would indeed give the bears an opportunity to take control if they choose to step-up.
*Much of next week for short term traders really is a wait and see game. For those looking for more guidance with intra-day analysis, trade set-ups and real time trade alerts consider subscribing. Members receive two thorough posts over the weekend along with the intra-day analysis and trade alerts throughout the week. For a sample of last weeks weekend posts see Open Interest for Expiration 3/24/16 and Set-ups and Game plan for 3/21/16 which I have unlocked.
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