Today’s Market Action – You Call That a Bounce?

Today’s Market Action – You Call That a Bounce?

Yesterday afternoon, we closed our short S&P 500 futures position after hours, on the expectation that some sort of bounce was developing in the near term.

If that’s what you call a bounce – it was pretty pathetic!

S&P 500 Price Chart May 26 2010

Source: Yahoo Finance

What a lame-ass bounce!

We’ll see what type of follow through we get tomorrow and Friday.  That MAY not be it for this bounce – countertrend moves have a tendency to move in an A-B-C type of pattern, rather than a straight line.  So it’s possible that today’s drawback was the “B”, or pullback, part of this retracement.  Which would infer that when completed, we’ll see another leg up – constituting the final “C” portion of the pattern.

How’s the VIX looking?  I’m glad you asked:

VIX 3 month price chart

The VIX is alive and well.  Fear is back!  (Source: Yahoo Finance)

It’s still a “bull market in fear”.  A break OUT in the VIX to the upside would likely coincide with a break DOWN in the S&P to the downside.  So we’ll watch both indices closely.  If and when we get a dual confirmation, that would indicate that the bear is back in charge!

PS: If you’re thinking about taking advantage of this pullback to go “long the VIX”, you’ll want to check out the ETF VXX.

PPS: And the ETF SDS is the double short tracking fund for the S&P 500 – remember if you are LONG SDS, then you are DOUBLE SHORT the S&P.

Just in case you were sleeping too soundly at night, a double short ETF can be the equivalent of slamming a few cups of coffee before you go to bed.

Further reading: How You Can Profit From Rising Volatility