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Stocks and rates stall at key resistances: which will break out first?

by SuperiorInvest

So it was another pretty boring day, with a flat finish, rates going up and up, and slightly higher implied volatility. This has been a very strange earnings season.

I noticed a rising wedge in the S&P 500 last night, and as of yesterday’s close, the index has virtually no room.

You may be able to gain a little more time, but not much. As I mentioned yesterday, these patterns are bearish by definition.

However, just because something is bearish doesn’t mean it has to break down.

Normally, I would be much more confident in this pattern, but considering how difficult the last four months have been for my views on the S&P 500, I am quite hesitant about it.

If the pattern falls to the downside, then it could pull back to its origin at 4850. I would have to see where it goes from there.

S&P 500 Index Hourly Chart

If it gets to 4,850, a lot of things can start happening because I have numerous trend lines converging in that region. If these trend lines start to break, things could start to happen.

S&P 500 Index Daily Chart

S&P 500 Index Daily Chart

I noted earlier that implied volatility increased a bit yesterday, and that’s because it was essentially flat, but VVIX rose 3% to 83, marking an increase for two consecutive days.

Sometimes when the VVIX starts to rise, the VIX is not far behind.

The VVIX measures the implied volatility of the VIX, and when the implied volatility of the VIX starts to increase, it suggests to me that something is happening beneath the surface that is causing this.

VIX Index Daily Chart

Part of the reason we see the VIX holding below 13 to 14 is due to significant gamma buildup around the options expiration next Wednesday, yes, February 14th.

It’s unusual to see VIX (OPEX) options expiration occur on the second Wednesday of the month, but that’s what the calendar indicates.

I mention this because it is interesting to watch implied volatility levels rising from the bottom, while options flows are helping to keep the VIX contained.

VIX Index Chart

Meanwhile, yesterday’s auction went well, but we still saw 30-year bonds and rates rise.

The 10-year bond is very close to breaking and exceeding the 4.20% region. If that happens, I think we could see it rise to around 4.35% to start.

US 10-Year Yield Daily Chart

US 10-Year Yield Daily Chart

I’m also keeping an eye out, especially because there appears to be a double bottom forming, mixed with a diamond reversal pattern.

There is solid momentum building on the RSI, which has been rising since June.

USD/MXN-Daily Chart

When you invert the peso, it is easier to see the relationship between the peso and the S&P 500.

These relationships between the S&P 500 and currencies appear to exist widely and are a function of the weakening and strengthening of the dollar.

This emphasizes how much of market movements have to do with changes in financial conditions. It is also evident that the S&P 500 and the peso are diverging.

MXN/USD-Daily Chart

Apple (NASDAQ 🙂 is also deviating from the S&P 500 and appears to be in a more bearish formation than the S&P 500. A close below $186 will likely set up a drop to around $167.

Apple Inc Daily Chart

It almost looks like Tesla (NASDAQ 🙂 has broken the neckline of a head and shoulders pattern.

It’s unclear at this point, but I can easily get the impression that if this is indeed confirmation of the pattern, then the losses on the stock are not over yet.

Tesla Inc Daily Chart

Nvidia (NASDAQ 🙂 exhibited a notable reversal candle yesterday, after moving above yesterday’s high and then closing below yesterday’s close.

However, given how overbought it is and the fact that the call wall for the stock for this week and next is $700, there’s probably a good reason why the stock has struggled in this region for the last few four days.

NVIDIA Corp Daily Chart


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