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On Wednesday the rally was on low volume trading. Yesterday the trend continued as the market ended higher ahead of Friday’s jobs report. Currently the S&P 500 is trading above all the major Fibonacci moving averages (8, 21, 55, 144) on the 5 minute chart.
Thomas Hoenig of the Federal Reserve Bank warned continuing keep interest rates at zero. He believes in increasing interest rates to keep pace with inflation so the recovering economy would not be harmed. Friday’s job report will give up a clear indication on how the economy is progressing. Increase in payrolls will help the markets.
As we approach the summer season expect low volume trading. The S&P 500 index is currently trading below the January 2010 resistance level and between the 144 and 200 day moving average on the daily charts. Unless we break through the January 2010 resistance level which is highly unlikely due to low volume trading expect the markets to trade below this area.
The Chicago Board Options Exchange (CBOE) Market Volatility index (VIX) measures options activity within the market and is widely used tracking the S&P 500. A common trading strategy for traders and investors includes a VIX level of 30 or above means an immediate switch from equities to cash. Traders and investors are retreating from the markets and finding safety and protection within the Treasuries, gold, and the dollar.
As long as we stay above this level expect pessimism as we approach the slow summer months. Currently the VIX is above the 144 and 200 day moving averages on the daily chart. The index is at the 29.46 as of Thursday June 3rd so traders and investors may be inclined to switch to equities and cover their shorts.
However due to the low volume in the recent rally and liquidation of mutual fund investors due to frightening instances such as the ‘flash crash,’ European debt crisis and BP Oil Spill expect volatility will return and traders will prey and make money on both ends. Traders will buy when investors are fearful and sell when they are euphoric and confident.
Summary of Pivot and Technical Levels
1219: S&P 500 52 Week High
1114: 144 Day Fibonacci Moving Average on Daily Chart
1100: Natural Resistance Level
1095: 144 Day Fibonacci Moving Average on 5 Minute Chart
1094: 200 Day Fibonacci Moving Average on 5 Minute Chart
1090: Important Pivot Level
1086: 200 Day Fibonacci Moving Average on Daily Chart
1175: Natural Support Level
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