U.S. ETFs and stocks put in another powerful week to overcome the continuing sell off in Apple (Nasdaq:AAPL) and close above the psychologically and technically important level of 1,500 in the S&P 500 (NYSEARCA:SPY)
Friday’s close marks the highest close for the S&P 500 in five years and leaves the index just below its nominal all time high.
For the week, the Dow Jones Industrial Average (NYSEARCA:DIA) gained 1.8%, the S&P 500 (NYSEARCA:SPY) added 1.1% and the Nasdaq (NASDAQ:QQQ) climbed 0.6%.
Apple (Nasdaq:AAPL) fell farther on Friday and gave up its No. 1 spot to Exxon (NYSE:XOM) as the largest company by market cap.
On My ETF Radar
A quick glance at the chart of the S&P 500 shows us that the index is at overbought levels of 74.41 on RSI. However, momentum is quite positive, as depicted by MACD, the trend is strongly positive and the 50- and 200-day moving averages have turned higher, as well.
Support is at 1,450-1,470, which could provide a floor when the inevitable correction begins to take shape. Overbought readings and excessively bullish sentiment point to an overextended market that is due for a pause or pullback within the context of a powerful uptrend.
Chart courtesy of StockCharts.com
As equities moved up, VIX ETFs finished mixed last week, with the VIX Index rising 3.45% to close at 12.89, while the iPath S&P 500 VIX Short Term Futures ETN (NYSEARCA:VXX) lost 4.30%, and the VelocityShares Inverse VIX ETN (NYSEARCA:XIV) gained 4.9%.
Typically, the VIX Index goes down when equity markets rise as investors feel less fear in the marketplace. Last week, however, the VIX Index rose alongside rising equity markets, suggesting that the VIX Index is possibly firming up in anticipation of flat or lower equity prices ahead.
Such a divergence between the fear index and equity markets suggests that investors are skeptical of major equity indexes being able to hold the psychologically important 1,570 level on the S&P 500.
Chart courtesy of StockCharts.com
Looking at the chart of the VIX Index above, simple technical indicators still point to lower prices, despite the new “bottom” VIX seems to be forming. The RSI is still near oversold levels with a reading of 42.61, while the MACD is still on a sell signal. Since VIX tends to be a “reversion to mean” indicator, the stage could be set for higher volatility and VIX prices sometime in the future.
For the week of Jan. 28, 2013, Wall Street Sector Selector is long VelocityShares Daily Inverse (NYSEARCA:XIV) from $21.45 and long ProShares Short 20+ Year Treasury (NYSEARCA:TBF) from $29.62.
Wall Street Sector Selector is “green flag” mode, expecting higher prices ahead.
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