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SPX Volatile Trading Range

 
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PostPosted: Sat Apr 22, 2006 8:28 am    Post subject: SPX Volatile Trading Range Reply with quote

The first chart below is an SPX daily chart (candlesticks and right scale) and NYSE Oscillator 50-day MA (red line and left scale) comparison chart. In Oct, the NYSE Oscillator 50-day MA fell to negative 25. In Jan, three months later, the Oscillator's 50-day MA rose over 50 points to 25 on a strong SPX rally and uptrend. Over the past three months, the Oscillator's 50-day MA fell to negative nine, while SPX continued the uptrend. The two circles show somewhat similar consolidation periods and the first circle is a support area for a potential SPX pullback. SPX major resistance is the upper Bollinger Band, currently 1,317. It's more likely SPX will begin a pullback from around 1,317 than rise to around 1,330 first, which the first circle suggests.

The second chart is a NYSE Oscillator 50-day MA (red line and right scale) and SPX daily performance (blue line and left scale) comparison chart. Remarkably, SPX's daily performance is highly correlated with the Oscillator's 50-day average performance (also shown in first chart). The second chart shows that the six times the Oscillator's 50-day MA rose to about 25 or higher, it eventually fell to about negative 20 or lower. Moreover, the second half of the Oscillator's 50-day MA downtrend more often than not causes SPX to fall more than the first half. Furthermore, when the Oscillator's 50-day MA hits bottom, SPX often also hits bottom. Only six observations, which reflect the complete data, is not statistically significant. However, the Oscillator's 50-day MA is accurate predicting both SPX tops and bottoms, and the correlations are high.

A crude estimation is the Oscillator's 50-day MA will fall to negative 20 and SPX will fall to around 1,275, which was a previous key level. If the Oscillator's 50-day MA falls below 20, SPX may fall between 1,245 and 1,260, where there are several major support levels. At that point, using only the Oscillator's 50-day MA, SPX may begin a rally. Also, the SPX bearish VIX 200-day MA and the SPX bullish CBOE Put/Call 200-day MA have generally offset each other, although the Put/Call MA has been stronger. One possible scenerio is SPX will fall to around 1,260, perhaps in May, and then trade in a volatile range for several weeks, e.g. between 1,250 and 1,275 (to increase VIX), rally until Jul or Aug, and fall until Oct.



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