S&P 500 Eyes Breakout Above Recent Highs: Watch the Volatility Index for Clues
Michael Kramer | Dec 27, 2023 00:29
Last morning after checking the Asian markets, I noticed that the VIX was up 5.5%. I knew what was coming next: We would just be grinding volatility lower all day and pushing stocks up.
Sure enough, the VIX finished the day down almost 50 bps after starting the day higher by about 5.5% to close the opening gap. I have not figured out what causes that gap to happen yet; it is one of the great mysteries of the market.
It was interesting to see the S&P 500 climb to 4,784 yesterday and close at 4,774. The reason is that we were briefly able to take out the highs from last week, only to close below all the highs.
When markets trade higher all day and then fade into the close, it is generally not a positive thing, and when it happens around a previous high, it carries an extra layer of negativity.
Additionally, you can now count the move higher as being complete with a 5-wave structure up, and wave 1 is equal to wave 5. So one could argue, if they so choose, that the retracement higher from last week’s drop is now over.
Anyway, the move lower into the close was driven by a sell-imbalance on the close, which was responsible for the market’s drop in the final minutes of trading.
If the S&P 500 can get above the day before yesterday’s highs fairly quickly today, it could break out above the trading range since the middle of last week. Checking where the VIX is in the pre-market will likely give a clue.
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