The market is holding up well despite some negative earnings numbers from some key stocks. The bears have had plenty of chances to push the market lower, but haven’t been able to do it.
Defensive sectors such as utilities, healthcare and consumer staples have been underperforming the last few weeks so it doesn’t seem like there is a flight to safety.
So far, the bulls have successfully defended the 50-day moving average and the rising 20 day average. That’s a good sign for now and I’ll be looking to add some positive delta.
Two key measures I look for in terms of market direction are the VIX Futures Curve and the level of $VIX.
When the VIX Futures Curve goes from Backwardation to Contango, that is generally a good sign.
We currently have the highest level of Contango since November.
VIX also closed below 16 today which in my opinion was very significant. If you look back to prior bear markets, VIX never got below 16 and that level acted as important support for volatility. It a great sign that VIX was able to close below 16 today, bulls just need it to stay below for a few days.
SPX bounced perfectly off the 200-week exponential moving average and is now testing the 50-day line as resistance.
One key sector to watch will be the banks as they have yet to break above the down trend line. Banks are an important indicator of economic activity and if they stall out here, it could spell trouble for the market.
IVZ is a stock that was crushed in late 2018 but has recently bounced back above it’s 50-day line and is holding that key level for now. It’s one to watch.
AMZN is a crucial barometer of the broader market and so far it is holding above its 50-day line. Keep a close eye on this level.
Disclaimer: The information above is for educational purposes only and should not be treated as investment advice. The strategy presented would not be suitable for investors who are not familiar with exchange traded options. Any readers interested in this strategy should do their own research and seek advice from a licensed financial adviser.