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Notes from the Trading Desk: When the Consensus Calls for a Volatility Spike

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Here are four reasons why bulls still have the edge.

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The SPX's mid-September closing high at 1,465 continues to cap rallies, while former resistance at 1,420 is so far acting as support. Meanwhile, the S&P MidCap 400 Index continues to hit a brick wall at the round-number 1,000 millennium mark, a resistance level that has been in place since it was first challenged in April 2011.

So, the bad news is that the major equity indexes are failing to take out key technical resistance levels, as the four Es -- earnings, elections, Europe, and economy (namely, the fiscal cliff) -- prevent buyers from taking a chance by adding long exposure when resistance lies just overhead.

The good news for the bulls is that the equity benchmarks continue to trade above support areas. For example, the SPX is not only above 1,420 -- which acted as resistance during the first eight months of 2012 -- but secondary support lies in the 1,400 area, which was the late-August/early September low ahead of a major rally.

Moreover, the MID remains above the 925-960 area, with 925 representing the 2007 peak and 960 having served as both support and resistance in 2012.



Meanwhile, the Russell 2000 Index is above support at 820, which acted as resistance in early July and is the site of a trendline drawn through higher lows in June and August. Even if 820 breaks, there is backup support at the 780 level.
No positions in stocks mentioned.
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