Did you notice the VIX today? The investors fear gauge moved lower approximately 11% today. The premier benchmark for of U.S. stock market volatility is back down near historical levels. This is a good indicator that investors/traders are getting complacent and and the probability of a move lower could occur over the short-term. The major benchmarks are inching their way back towards an overbought state (though not quite there) so I will be paying close attention to how the VIX reacts to what I think will be a sharp move outside of the tight range we have been trading in over the last five days.
I am currently following the S&P, more specifically SPY. If the benchmark ETF can hold support at 141 (or around there) we could be in for another leg up or at least a test of the recent highs. If SPY moves below 141 or moves upwards and fails to break recent highs I might be inclined to consider a trade. I would prefer to see the latter as this would move SPY into a short-term overbought sitiation while moving the VIX lower to most likely test recent lows. This could be a good situation for a high probability set-up.
Stay tuned for how this scenario plays out!
RSI Wilder (5) for December 11, 2006
- SPY - 67.1 (neutral)
- DIA - 65.7 (neutral)
- IWM - 60.5 (neutral)
- QQQQ - 51.6 (neutral)
Andrew Crowder, Chief Investment Strategist, www.crowderinvestments.com