The indices are displaying narrow range characteristics. The underlying bullish tone suggests that while there may be not much of an appetite for aggressive exploration of higher ground the active buying support that emerges on signs of weakness acts as a check on the index traders that want to test the downside.
Having spent several session above the 1160 level, the oil index (^XOI) abruptly reversed Thursday in a whipsaw move that may have been designed to shake out the faint-hearted traders. The reverse brought the index back to the 20-day EMA in a hurry and it's possible a new leg down is emerging.
The Russell 2000 (^RUT) continues to outperform the other broad indices. The index has been re-energized since the beginning of November and its recent vigor has provided additional support and impetus to the overall bullish tone in the large cap indices.
There are plenty of traders doubting the sustainability of the advance since July, which is producing abrupt short squeezes when the news flow provides an excuse for the bulls.
The S&P 500 moved higher yesterday, but finished the session in the middle ground of its intraday range. The index has registered quite prominent upper tails in four of the last five sessions and there are indications of considerable resistance in the region above the recent highs at 1390.
Since the precipitous and broad based selling in May, the CBOE Volatility index (^VIX) has steadily declined and a descending wedge formation that has developed appears to be running out of room to extend much further. It is hard to imagine that there could be significantly lower volatility values ahead.
The S&P 500 (^SPC) closed yesterday less than four points from its recent multi-year high. With a successful test of the 20-day EMA behind it, the next probable target is the upper volatility band just above 1400.
The housing index (^HGX) has traded within a well-defined recovery channel since the July lows. There is a possibility that a double top to the recovery was formed in October and the index now appears to be on the verge of violating the lower boundary of the channel.
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