Last week here I summarized my post with: “the most likely outcome is another few days to weak of tight rangebound consolidation that may (but doesn’t have to) include further minor (but buyable) weakness followed by strength.” The rangebound part happened and I will lay out where my thinking was regarding “the followed by strength,” and why I have some reservations about that now. I find next week a bit more allusive with conflicting data points and am thus less clear on what to expect. Perhaps that results in a neutral/rangebound week, which would be befitting to what the 2016 represented.
Breadth: For the most part there is very little change to my thoughts on breadth since last week so if you need a refresher on what I said you can read it here. Below are just the charts without comments.
SPX 20-day highs:
SPX stocks above their 20-day MA:
SPX stocks above their 200-day MA:
A look back at a study I showed over TWTR two weeks ago:
Here is where it gets a bit complicated. We currently just passed the 10 day mark and thus just based on this study as well as seasonality, one would expect higher prices next week. However, based solely on the open interest (shown below), one would expect another rangebound to possibly lower week.
Open Interest: Please see here for an understanding of how I define and determine when pinning was successful.
SPY-W: (14 of 15 pins since inception*). The current best pin is 225.5’ish and essentially where SPY closed on Friday. To the downside there is put support at 224 and then nothing below there. To the upside there is some call resistance at 226 and then not till 228, which is major call resistance. Since this has potential to shift early in the week the most we can take away from this is that it favors a tight range of 224 to 226 on Tuesday and Wednesday, but should it break that range to the upside price would be curbed at 228 for Wednesday expiration.
SPY-F: (7 of 10 pins since I began tracking*): The current best pin for Friday is 225, which again would suggest very little movement next week. There isn’t much put support under 225, but there is call resistance at 226/227 and then again at 230. A large rally in the week can shift this open interest, but taken at face value it suggests a neutral week with more advantage to the bears.
In sum, seasonality and the 52-week highs minus 52-week low study from 2 weeks ago suggests upside next week; however the current open interest (which could change) suggests a fairly rangebound neutral week that gives more advantage to sellers than buyers. Keep in mind neither points preclude individual sector movement** especially considering sector correlations are the lowest since October 2009 (stat taken from Convergex).
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*Pinning from last week.