Yesterday’s decline was caused primarily by the shootings in Ottawa, Canada which appear to have been terrorist related. This took out my market direction portfolio positions on both the TSX and SPX. Last night I explained that the events would be recovered today and indeed what investors are now seeing is a surge in buying this afternoon on the back of quarterly earnings from Caterpillar and 3M. Volume though is low and looks set to come in below yesterday’s which is part of the reason the surge this afternoon took the Dow up over 300. The buying is overdone though and volume being this low could see the market give back some of the mid-afternoon gains.
SPX Intraday Oct 23 2014
The SPX intraday is pushing to the 50 day EMA. This should keep the 50 day SMA from falling further and continues to point to the market recovering. The next move above the 50 day SMA will break through the previous weakness which started at the end of September. You can see in the chart how the S&P at the end of September had trouble with the 50 day SMA and kept dropping below it. If the market stalls here it will need careful watching to be sure that the rally holds. Tomorrow we could see some weakness after such a strong rally, certainly in the morning.
SPX intraday for Oct 23 2014
Russell 2000 Intraday Oct 23 2014
If we look at the Russell 2000 we can see a gain today of over 2% but more important is the Russell 2000 is moving back above critical support. IWM ETF is the best ETF in my opinion to use to follow the Russell 2000 small cap universe. $108 has been the mainstay of support and despite what analysts keep telling investors about everything from death crosses to golden crosses, the $108 level has been the critical support zone. This is where I have been repeatedly buying calls on the IWM. The only call trade that failed was the trade earlier this month when I bought calls only have the Russell collapse lower. I then averaged in lower in the Russell by buying the $105 calls. So far the Russell is holding well above those calls. By averaging down on the IWM calls during the correction, I reduced by cost basis so I was below the $108 call valuation. I will be holding these calls hopefully for a few more days yet as I expect the IWM ETF to reach up to the $114 level before I decide whether to sell them out.
Russell 2000 Intraday Oct 23 2014
Into The Close
Obviously a positive close is in store for stocks. If we hold at the highs for the day then we will definitely see some weakness tomorrow morning.
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