NASDAQ Leading S&P 500 In Rally, But Headwind Dead Ahead

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July 26, 2010

It’s a clear good news/bad news scenario for the major indices. Let’s just approach it from that perspective, beginning with the S&P 500.

The good news is….

The S&P 500 Index has crossed back above the 50-day moving average line (purple), which had been a resistance line with the bullishness from three weeks ago.
The VIX is trending lower. Moreover, the VIX’s lower Bollinger band (at 20.13) is now pointed lower, meaning it’s less likely to act as a deflective floor. Rather, it just may gently catch the VIX and slowly guide it lower.

The bad news is…

The S&P 500 is on a crash course for the 200-day moving average line (black) at 1113.4, and the upper 50-day Bollinger band at 1141. Either could halt or slow the advance, and if they combine at the same area, they could be become doubly-tough to cross.
The VIX, though trending lower, seems to be hitting a minor floor around 23.0 (dashed)

While from a fundamental point of view the recent gains and more upside are merited, from a technical point of view we see some roadblocks in the near future. We’re getting close to the inflection point.

S&P 500

Since the NASDAQ’s pros and cons are similar to the S&P 500’s, we’re not going to dive into the same detail. We’ll just point out that the NASDAQ is - unlike the S&P 500 - above its 200-day moving average (black). It’s still going to tangle with its upper Bollinger band though, currently around 2363, but falling fast.

The VXN is also pointed lower… barely. It’s floor (dashed) seems to be just a hair above 23.00 as well, though we’ve not necessarily seen any real effort to push up and off that line.

As was the case with the SPX and the VIX, the NASDAQ Composite and the VXN suggest there’s a little more room for upside, but real tests are on the horizon.

NASDAQ Composite