McMillan Market Commentary 5/12

The stock market is shooting back and forth like a futures contract. In fact, the whole market

seems to be tied quite directly to the price of oil, silver, gold, and the like. When the market

is linked to an unusual "force" such as this, some additional caution is required. At least

technical analysis doesn’t care why moves are being made, but rather is just concerned with

the price movements themselves.


The S&P 500 Index ($SPX) sold off last week, touching the 1330 level on Thursday, and

nearly fell to that level again on Friday. But then it bounced, leaving that as a support area.

In fact, the bounce early this week was quite strong, and it seemed as if the bulls had

regained control. Technical indicators improved, and there was a general sense that a challenge of

the highs might be upcoming soon. However, Thursday’s action changed all of that, and it made

some sense to view the rally on Monday and Tuesday of this week as more of a commodity relief

rally than a true bullish movement.


In any case, the 1330 level on $SPX remains our bullish demarcation line. A close below

there would turn us bearish. On the upside, there is resistance at 1360 (yesterday’s high) and 1370

(the "Bin Laden killed" high). Perhaps $SPX is in a trading range between those two areas, but one

never knows how long a trading range will last.


$VIX futures lost premium again today (Wed), although some of the contracts – especially the longer-term ones – are trading well above $VIX. For example, the October (2011) contract is about 6 points above $VIX. It was nearly 7 on Monday. That means buyers of $SPX puts are paying a dear price for protection later this year.


In summary, both the bulls and the bears have had their chance, but neither managed to

engineer a breakout. The 1330 and 1360 levels are important in that regard, and – with $SPX almost

exactly in the middle of that range – traders can await a breakout before taking major directional


Larry McMillan