The story of volatility has been overplayed the past week but this has as much to do about the general lack of volatility since the market lows of 2009. February has the potential – although there is plenty of time left to change this – of marking a shift towards a period of high volatility comparable to that of 2008. It doesn’t necessarily mean markets will crash as they did in 2009 but it could be a rocky ride for those overtrading their accounts.
What this meant for markets were positive tests of 200-day MAs and slower support trendlines. The Russell 2000 made a couple of successful spike low tests of the 200-day MA. If you are prepared to use a wide protective stop (which means a small position) then buyers could start building into a position on the assumption this is just a larger than an expected pullback, made to look worse given the nature of perpetual small gains during 2017. If you are following my buyers guide based on the relationship of the index to its 200-day MA, then there is still some way to go.
The Dow was an index which finished Friday resting neatly on a rising support line. Friday was so volatile it traversed the entire range and then some of one of the rising channels from 2017. Volume climbed to register as accumulation – a reasonable sign of a possible capitulation by ‘weak hands’. I would like to see relative market performance (vs Tech and Small Caps) pick up but it’s not a bad start.
The S&P made a solid spike low at its 200-day MA. As with the Dow Jones Industrial Average there was a spike in accumulation. While wannabe buyers may feel they have missed the chance at the 200-day MA there will probably be another opportunity when markets look to retest Friday’s lows. Bulls will want traders to fight back on any push into Friday’s lows.
The Nasdaq also spiked nicely on Friday but didn’t make it down to its 200-day MA.The positive is the relative leadership from Tech stocks for 2018. Also, while the index didn’t make it to the 200-day MA it did find itself successfully defending a channel support line from 2017. Given its leadership role, there is a good chance bulls will want to come back and take this one higher.
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