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SPX, NYA, VIX, IBM: Market Refuses to Leave the Intermediate Chop Zone


The depth of Friday's decline has raised some questions.


The Volatility Index (^VIX) closed outside its upper Bollinger Band on Friday, and this often suggests some type of bottom is close for equities -- though when this signal fails, it can fail in spectacular fashion.

Click to enlarge

On the bear side, I also want to publish a quick update on IBM (NYSE:IBM), because it may have broader market implications. On September 19, IBM was trading at 207, and I talked about the fact that there were still no bearish divergences present in the RSI and MACD, and to watch for divergences as a precursor to a top. IBM then went on to make a higher price high as expected, and also formed slight bearish divergences while doing so -- it's interesting to see what's happened since, especially once it crossed my previously-noted "bull warning level." IBM has now reached important long-term channel support.

According to Bespoke Investment Group, when IBM trades down on earnings (as happened on October 16), then over the next five weeks the SPX heads lower exactly 70% of the time. Thus it would seem that if IBM can't reverse from current levels, then SPX may be in for some trouble too. Looking at the chart below, if IBM is going to maintain the uptrend, then this would be a great spot for a bounce. Watch this one carefully going forward.

Click to enlarge

In conclusion, the bottom line is that while the market has been awfully whippy and frustrating from an intermediate perspective (conversely, the short-term updates have hit the last two big turns perfectly), there's still nothing to write home about for bears in the big picture. There's a lot of support in the 1400 area, so if bulls can't turn the market back up here, that zone will be the next real test. Trade safe.

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