Thursday, January 24, 2013

Markets approach overbought levels / SDS at channel support

JAN24 1023EST. Among the many caution signals in the markets at present -- including a VIX reading not seen since May 2007, the financial futures and market indices at trendline resistance levels, the S&P500 in particular just now kissing round-number resistance of 1500, etc -- another chart now joins the Cassandra camp. That would be the 2-month perspective on SDS, a leveraged ETF that tracks the inverse of the S&P500.

The chart, pasted below, shows that price is at the support line of a well-defined, 2-month channel. Since SDS, the Proshares Ultrashort S&P500, moves inversely to the indices, the security's touch of support suggests that the broad markets are at resistance.

SDS (Proshares Ultrashort S&P500). Nov 12, 2012 to Jan 24, 2013. 1-hour candles.
Moreover, the oscillator at the chart's bottom also paints a bearish picture. That oscillator, which measures the difference between price and the 200-period simple moving average, is presently at a 2-month low, which indicates an oversold market for SDS.

Of course, markets can grind on higher still -- such is the nature of bull markets -- and the nimble trader would be well-served by continuing to place bullish bets until they actually stop paying off. Nonetheless, the caution signals merit discussion, even if the initiation of bearish strategies still remains premature.