Technical Action at the End of Bullish Third Quarter

S&P500 Up in the Third Quarter

S&P500 added 5.76% in 3Q2012 and as much as 12.72% since the low close on 1 June. This Friday the index closed at 1440.67, 1.71% off the post-2009 highest close of 1465.77 two weeks ago. We have now had 4 consecutive positive months, with June, July, August, and September S&P500 performance of +3.96%, +1.26%, +1.98%, and +2.42%, respectively.

S&P500

Recent Price Action on Equity Indices

If markets behaved all the time like they have in the most recent days, trading with technical analysis would be easy (unfortunately they don’t and it isn’t). We have recently seen the major US equity indices make nice turns exactly (or almost exactly) on technical levels.

S&P500

S&P500 (the chart above) bounced off the 1430-1440 resistance area on Wednesday (discussed here). On Thursday it turned to the downside again almost exactly at last week’s intraday low, which also happened to be a nice round number – 1450.

Dow Jones Industrial Average

Dow Jones Industrial Average had been stronger than S&P500 until the middle of this week and unlike┬áS&P500 it had managed to stay clearly above the previous pre-breakout level on Wednesday and Thursday. Thursday top took place quite nicely near previous week’s low, like on S&P500. Finally, on Friday the Dow was weaker than S&P500 and found support just above 13370 – a level corresponding to the intraday highs on 12 and 13 September (pre-breakout).

NASDAQ Composite

NASDAQ Composite has been the weakest and the most volatile of the three big indices. Nevertheless, like on the other two, support and resistance levels indicated by past highs and lows would have provided a good hint regarding this week’s turning points too (Wednesday low near 3080 and Thursday high near 3140).

Of course it is always wise to analyse the indices together, as support and resistance levels on one index usually somehow influence the price action on the others too and the turns usually happen at the same time.

VIX Lowest in 5 Years in 3Q

The VIX (CBOE Volatility Index) has gradually moved lower over the course of the third quarter. The index never traded above 20 in August and September and we have seen several closes below 14 – the lowest since June 2007.

As equities declined, the VIX has gone up a bit this week and closed the quarter at 15.73.

VIX (CBOE Volatility Index)

VIX Futures Curve

VIX futures curve shifted down and the contango has remained sharp throughout the third quarter. October and November contracts lost 8.2 and 7.4 points, respectively, from the end of June to the end of September. The long end of the curve is now about 25.

VIX futures curve