by Chris Johnson | June 19, 2012 11:48 am
Stocks are continuing their move Tuesday morning as the markets are seeing some relief rallying in the wake of this weekend’s Greek vote.
For the most part, the rally is broad in its draw as the major indices are up across the board, but some significant leadership is beginning to form in the technology sector, suggesting there is an increase in the speculative interest toward the market — something we always look for to help determine if a rally has legs.
In addition to the leadership of the technology sector, the activity in the CBOE Volatility Index (VIX) has broken through a significant level that I wrote about last week. On Monday, the “fear index” broke down below the 21 level, which had been the site of support for the VIX. The break below this level indicates that options premiums are pricing in less fear, a sign that the markets are likely to relax a bit as investors leave the sidelines and pour money back into stocks.
At the same time that the VIX broke through 21, it also moved below its 50-day moving average on Monday, the first close below this important trendline since May 2. The break below this trend is likely to begin a shift in the VIX that will be more accommodative to the bulls.
In addition to the significant break below its 50-day moving average, Monday’s move in the VIX also completed a significant technical pattern we don’t usually have the opportunity to talk about.
The move below 21 breached the neckline of what often is referred to as a head-and-shoulders technical pattern. The “shoulders” in this case are formed by the short-term peaks in the VIX around the 25 level in mid-May and mid-June (blue circles). The “head” of the pattern formed in early June as the VIX crested above the 27 level. If the pattern follows its form, the break below the “neckline” at 21 (red line) should signal a bullish opportunity for stocks, as the VIX now is likely to break into a new trend lower.
Accompanying the VIX’s bullish head-and-shoulders pattern is a break above the S&P 500’s 50-day moving average. After a successful test of the SPX’s 200-day moving average (red circle in the chart below), the S&P 500 now is breaking above its 50-day moving average (green circle). Such a move often acts as a catalyst for the technical community to start moving money from the sidelines back into equities. We expect the market will see an increase in bullish activity in the short term as traders start to increase their bullish bets on stocks as we head into the summer trading season.
While it might be the right time to go out and start buying the SPDR S&P 500 ETF (NYSE:SPY) or other market-based ETF, it always is worth taking a look at the individual names that are following suit in breaking above significant technical trendlines for trading ideas.
The table below identifies 17 S&P 500 companies that recently have broken above their respective 50-day moving averages. These stocks are seeing an increased chance that the “crowd” will start to jump on board as buyers as these companies move into technically stronger trading trends. For our money, there are more than a few short-term bullish opportunities among these names that are worth a good, hard look for short-term bullish trades, because the market appears ready to carry them higher.
As of this writing, Chris Johnson did not hold a position in any of the aforementioned securities.
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