By Brandon Wendell, Online Trading Academy Senior Instructor and Trader Mentor

In my last writing, I talked about the confusing signs the market seems to be offering. Unfortunately, this week proves more of the same. I just watched as Intel released earnings that were $0.10 better than expected. This coupled with options expiration should make the markets rise to end the second week of January.

This is in complete defiance to those who have been predicting a major correction is overdue. Looking at the S&P 500 chart, we can see that the bullish momentum we have been experiencing seems to be dying out. Yet prices continue to march higher! On the weekly chart, the Index has approached two critical levels. The first is a 76.4% Fibonacci retracement of the last major decline. The second is a 100% Fibonacci projection from the only correction we experienced in 2009.

Figure 1

Time will tell if this is the point for a correction, but it does seem likely. The 30 year bond has bounced off of the bottom of a trend channel and appears to be moving higher. In a normal market environment, this would be bullish for stocks as it forces rates lower and keeps inflation in check. However, with the current deflationary environment, a spike in bond prices usually signals a flight to safety for investors and bearish pressure on equities.

Figure 2

The most confusing part of all of this activity is the volatility level. Here we are in the midst of earnings season, which is a time of unknowns and usually volatile. However, look at the measure of market volatility, the VIX. It is still dropping. This suggests that the market is not expecting any surprise earnings to the downside. The VIX is at a major support level and a missed earning on a big name could send the market reeling and volatility higher.

Figure 3

All we can do is watch and wait. I am continuing to be a very nervous bull until the market shows me something different. Be sure to set your stops and protect your money.

Have a great day.

- Brandon Wendell bwendell@tradingacademy.com

DISCLAIMER:
This newsletter is written for educational purposes only. By no means do any of its contents recommend, advocate or urge the buying, selling or holding of any financial instrument whatsoever. Trading and Investing involves high levels of risk. The author expresses personal opinions and will not assume any responsibility whatsoever for the actions of the reader. The author may or may not have positions in Financial Instruments discussed in this newsletter. Future results can be dramatically different from the opinions expressed herein. Past performance does not guarantee future results.

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