Buy Program Saves Equities As VIX Rallies

The equity market was literally on the ropes today as the VIX rallied to an intraday high of $24.65 (15%) but closed off of the highs as $22.63 as a buy program saved the markets in the afternoon session. Let me stress this, the bears had this market by the throat and had managed to breach the last line of defense of $126.50 on the SPY which would have been the last level before the March low of $125.50 and ultimately the 200 MA. However, the market was saved by a buy program in an extremely volatile day before options expiration. I believe that today’s action translates into a rally tomorrow.

The closing candle today is a spinning top, which is a sign of a pause or indecision. How can we tell if this pause will be bullish or bearish? The answer is to look below at the cash S&P.

The cash S&P actually tagged the 200 MA during the lows of the trading day. This rejection in combination with the spinning top candle and the volume to match yesterday’s almost guarantee’s a positive day tomorrow, so long as no more bad news comes out of Greece concerning the Euro.

Furthermore, the Nasdaq made a bottoming tail on the daily chart. Yes it has confirmed below the 200 with today’s close, but it has put in a short term bottom with the rejection of the absolute low that was put in on March 16th. AAPL and NFLX were destroyed all day but managed to tough out a rally which helped the Q’s form a hammer candle which ultimately means that we’ll see some life in the market for at least the next trading session.

One thing that we must be aware of, we will see the mainstream media question the market and attempt to scare investors into shorting due to QE II coming to an end. This is the perfect contrarian indicator for a fairly decent sized rally off of the lows that we are in the process of putting in now. I will go long the market when I see that opportunity however it is not certain that we have yet put in the bottom and we still have what is likely to be a volatile day ahead of us tomorrow as well as a Fed meeting next week. So until then, remain very cautious and be sure to use stops on all of your positions.

About Aaron Basile
Day Trading and Swing Trading Ideas, Certified Personal Trainer, Power Bodybuilding, Avid Sports Fan (NBA, NFL)

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