I have some clients stopping by early, so again another short market update. The market is likely in a third wave up, but there are still pullbacks. VIX:VXV is safely under .91, so you can look into inverse volatility again and personally I favor TNA over UPRO short term.

It's hard to say if today will really offer much pullback. Ideally I would like to see VIX hit 16-18 even if for only a tempoirary spike. I just cannot justify going in at a 14.6 VIX. It feels like chasing. The Slow STO still offers room for advancement and to be honest for the next month I see mostly positive. Remember, we are swing trading, not buying and holding for a month, so you still need to time it properly on the daily and hourly charts. Let's hope this is not a slow grinding upward 3rd wave. If it is, it will be frustrating due to the lack of pullbacks, but that is life.

Lastly, do not worry the market will leave us behind. Two words, "Debt Ceiling". The big players will not get heavily in until this is all done. Plus we will get news driven again in about 6 weeks.

My gut feeling is that they want to run this market up because that will be a very contentious and hard fought issue that will roil the markets. For now I do not want to guess at the damage there, but I would not rule out the correction we talked about. The moving averages did move back inside the wedges on SPY and VIX, so it seems like they would prefer to flirt with the top of the wedge before breaking.
Miguel Nasiff

Good morning Brian.
I read your analysis and I want to ask your opinion.
I have a position in APPL and a smaller in XIV. I feel that during this month the market will be positive, thereby increasing my XIV'm thinking, but I feel the same with AAPL. Do you think my friend?

Bryan Gebhart

Hi Miguel,

The good news is I think you are right on the overall market accessment, but I feel that there should be a pullback in the shortest term allowing for a better buy point. SPY is well overbought at this point. Price is at the top of its daily BB, NYMO is very close to the top of it's BB and VIX is in the 13's. None of these can sustain much more upwards movement.

A couple possibilities exist here. The first, which is preferred is that we contract on SPY back to the 20 day EMA, which would be in the mid 143's. This might be a little aggressive though. We have a number of support lines below us. including the 1 std dev marker around 145, and the .618 fib line at 143.9. I usually base my 2/3's of my XIV forecast on SPY movements.

Another possibility is that SPY works it's overbought status out through choppiness over time. This is the more frustrating variation because day to day pricing will be somewhat stagnant.

XIV has something going for it again. VIX:VXV at 84.6. This is a very good number and suggests that XIV will benefit from contango, even when SPY is flat. So in short, you can wait out a small 1-2% correction in SPY being in XIV or if you prefer you can try to capitalize on that as well.

Aapl is another story. I like to buy stregnth, and it just is not here for Aapl. The IBD composite rating is 56, which is failing, it's relative stregnth rating is a 17, Acc/Dist D-, and Industry Rating D-. Earnings are good, but with so much against it, I would prefer to wait. I have heard a lot of buyers talk about getting in around 500, 507, etc, so maybe that might be a decent start point, if you really want to make a play on Aapl.

Last thing to note, be careful on the time frame you are aiming for. One month buys can be a little dangerous with the debt ceiling coming up, and you never know if a credit agency may drop our rating again with all the political upheaval. I don't foresee the debt ceiling situation exploding until the last minute (like the fiscal cliff), but still watch out on anything more than short term plays. A series of short term plays can still capitalize on the same movement without as much risk of getting stuck.


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