In focus: Higher volatility lies ahead

By Lawrence G. McMillan

The levitation act is over. History shows us that the market is about to become more volatile. However, the market move can be in either direction.

Sellers finally swarmed all over the market yesterday, creating a “90% down day” for the first time this year. Today’s market reflex rally was a proper response to the “90% down day.” However, it is likely to be just a fleeting thing, which is why we are requiring a two-day close above the 20-day MA if we are to reverse the bearish position that we established at yesterday’s close (see the Follow-Up action at the end of the letter). The 20-day moving average is at 1,358, so a close above there would be bullish, for it would mean that yesterday’s breakdown was merely a refueling stop for the bulls.

Yesterday’s low on The Standard & Poor’s 500 Index SPX +0.59%  was 1,340 — right at the same support level that still exists from early February. A close below there would be bearish confirmation, while a failure to close below there would be ample fuel for a bullish argument. So, from the viewpoint of the SPX chart, the 1,340 level is once again of major importance. Hence, a breakout above 1,358 or below 1,340 should be heeded. Below there, the long-term trend line of this current bullish phase is at about 1,300 currently.

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