Market Analysis

New Year’s Eve Flush

Happy New Year everyone!

Markets finished 2014 pretty much in the same way they had been running all year: Breaking records of all sorts. The latest? A 20% jump in the $VIX on the last trading day of the year. Another “never ever happened before” event.

I hadn’t planned to trade as I had closed final longs the day before waiting for a new set-up. Per the 1999/2000 analog we have been watching we were mindful of sudden weakness being a risk factor and yesterday’s double top in the $IWM provided a well defined short entry which we were able to take advantage of in the member feed:

TF short

Clearly the end of the year and quarter served as a trigger for profit taking. Whether this will translate into more serious corrective action remains to be seen. Yet the move was steep enough to wipe out 7 days of previous price action and to lay to waste the Santa rally expectations many had counted on as evidenced by all the record $ETF inflows witnessed in just the recent days:

SPY 15

Still there are signs that this action may still prove positive for buyers in the next few days. For one the $VIX filled its recent gap much like it filled its October gap earlier in December:


New Year’s Eve’s flush not withstanding seasonality tends to be positive in the first couple of days in January at least:


And structure wise nothing has really changed for the $SPX as rallies in the past 2 years have thrived despite negative divergences:


Note the advances minus declines closed at -404 which has actually been close to a bottoming signal in the past couple of years as well and, bizarrely, high/lows actually closed the day in positive territory:


The monthly $SPX chart continues to show an overbought market closing above its 5EMA and 8MA as it did yet again in December. Yet the monthly MACD trends also show a market that is having an appointment with a negative MACD cross-over and, from the looks of it, this appointment is coming sometime in 2015 with the Ryder bull/bear ratio at a precariously bullish 0.06:

SPX monthly

If anything the final trading day of 2014 signals the promise of increased volatility for 2015 that we have been talking about here: Volatility Ahead.

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Categories: Market Analysis

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