Serge Berger is the head trader and investment strategist for The Steady Trader. Sign up for his free weekly newsletter.
The market action the day before the much-anticipated Jackson Holespeech by Fed Chairman Bernanke was as wild as the speech’s content is uncertain. Stocks gapped higher on some news about an investment in Bank of America (NYSE:BAC) by Warren Buffett, but the rally quickly ran out of steam and the market sold off for the rest of the day. And Hurricane Irene certainly didn’t add to investors’ comfort levels, so risk off was the theme of the day.
The rally at the open was, however, enough to fill the gap from Aug. 18, which we have discussed the past two days. On the hourly chart of the S&P 500 below, note the spike up to the 1,190 area, which then immediately served as resistance and the highs of the day.
As a reminder, on the daily charts, the key level to overcome on a daily closing basis remains 1,200, and along with that we would need to see solid participation from the financial sector. The S&P 500 yesterday recorded a weak candle as can be seen on the chart below. This smells of indecision and digestion ahead of today’s Bernanke speech.
A check on volatility as measured by the CBOE Volatility Index (VIX) still shows very elevated implied volatility in options on the S&P 500 components, as it is staying above the 30 level.
And since I haven’t mentioned it in a while, the semiconductor complex as measured by the Semiconductor HOLDRs (NYSE:SMH) is still on the dip, but has meanwhile worked itself into a big area of support dating back to early 2010.
Besides taking some profits in our swing-trading buckets, we did very little yesterday ahead of “Bernanke and the Hurricane” (sounds like a good movie title) and plan on keeping directional exposure minimal into early next week. We will have plenty of time to digest the new information over the weekend and early next week, so there is no reason to jump the gun. The safe place after the rally this week remains on the sidelines, while eyeing opportunities to get long for a continued oversold bounce should we clear 1,200 on the S&P 500.
- See Sam Collins’ Daily Market Outlook: 2 Safe, High-Yielding ETFs to Buy Now
- See Sam Collins’ Trade of the Day: Citigroup Could Hit $50
