• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Bruce Kamich
    • Doug Kass
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • TheStreet Smarts
  1. Home
  2. / Investing

The Easy Money Has Been Made

That's doesn't mean the rebound can't continue.
By HARRY SCHILLER
May 22, 2012 | 05:30 PM EDT

Last week I highlighted the first big Fibonacci retracement level as a downside target in the S&P 500. I said that the bad news was the .382 Fibonacci retracement of the rally off the October lows coming in at 1289.60, and the odds are good that this level will be seen before the selloff is complete, which is still a long way down.

During Friday's expiration-related selloff it got a lot closer, as the S&P 500 bottomed at 1291.98, less than 2.5 points from that Fibonacci retracement level. From there, the market has shot back up in one of its sharpest two-day advances of 2012.

Was the bottoming of the S&P 500 just above its .382 level some weird coincidence? I don't think so. Maybe the coincidence is that so many traders got bearish as the market returned to that Fibonacci level. Of course, that helped set the stage for the sharp rebound that followed.

SPX: Bouncing off the .382 retracement
Source: optionsXpress
View Chart » View in New Window »

Now that the market has achieved (or almost achieved) this important downside objective, what can we look for? Obviously, a bounce was overdue as the market had become quite oversold on the drop into Friday's lows. The rebound has already carried 36 points in the S&P 500, back up to the 1328.49 level. That's almost a 3% move in just a couple of sessions. I'd have to say the easy money on the upside has already been made. That's not to say the rebound can't continue, because it obviously can. But I am using today's continued bounce to cut back a bit in my positions to a maximum of 60%-invested levels. I got the a.m. pricing at Rydex (now Guggenheim Investments) of 1326.73 in the S&P 500. I'm just cutting back a bit in my S&P 500 holdings. I have also been writing out of the money calls in the SPDR S&P 500 (SPY) after buying June $131 calls into last week's selloff.

If the rally continues, and I suspect it will (though not in the straight-up manner of the past couple of sessions), I have targets to look for as levels to sell into.

First is another Fibonacci retracement level. This one is the .382 retracement of the decline from the April highs to last week's multi-month lows. That decline was 130.40 points in the S&P 500. The .382 retracement of that decline comes in at 1341.79. So that's the next target for this rebound. If that level can be exceeded, a little higher is the next target -- the gap from last Monday, the May 14 gap at 1353.39.

SPX: The May 14 gap beckons above at 1353
Source: optionsXpress
View Chart » View in New Window »

Now that we have seen a stunning reversal off last Friday's multi-month lows, it's no surprise the market's oversold and under-loved condition, which marked last week's lows, has been largely relieved. Not that the market is as overbought and over-believed as it was at the recent top, but it's no longer at oversold extremes.

The McClellan Oscillator, which last Friday registered its most oversold reading since last August at -339, is headed for a reading closer to the neutral zone. Yesterday's reading of -176.76 was still quite oversold but no longer at extremes. Today, if the market closes anywhere near the morning highs, the oscillator should be back on the oversold side of neutral, no longer in oversold territory.

On the sentiment front, there is the latest contraction in the Volatility Index (VIX). On Friday, the VIX spiked to a new high for 2012 at 25.14. That provided a good buy signal. Monday of that week, the VIX gapped up from the close of the previous Friday, May 11, from 19.89. Today, the VIX is returning to fill that gap. The low has been just above the gap at 19.98. The market is still shy of May 11 closing levels, but the VIX has effectively returned to the level that marked the May 11 close. On this sentiment gauge, last week's shakeout has already been erased. I'm not thrilled to see that.

VIX: Pulling back into last Monday's gap
Source: optionsXpress
View Chart » View in New Window »

Grade me bullish, now up to 60% levels, but cutting back in positions as upside targets are reached.

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

At the time of publication, Schiller was long S&P 500, High Yield Bonds, Russell 2000 and precious metals funds at Rydex up to 60% levels; long junk bond funds at Fidelity up to 20% levels; holding bullish credit and debit spreads in SPY and DIA options; holding bullish credit spreads in May IWM puts and bullish short puts in the GLD and EEM; short distant June calls in the SPY (a bearish position); short distant June calls. In AAPL.

TAGS: Investing | U.S. Equity | Stocks

More from Investing

Fed's Relevance Appears to Wane

Peter Tchir
Jun 6, 2023 1:00 PM EDT

I may be guilty of wishful thinking, but it looks like the market is finally moving beyond the Federal Reserve.

Walmart's Charts Have a Lot in Store

Bruce Kamich
Jun 6, 2023 12:38 PM EDT

Let's check on new price targets for WMT and how aggressive traders could play the stock.

Here's When You Want Amazon's Prices to Go Up, and They Probably Will

Bruce Kamich
Jun 6, 2023 11:43 AM EDT

Let's check the charts -- and my new targets -- for AMZN.

I'm AMPD About This ETF

Mark Abssy
Jun 6, 2023 11:30 AM EDT

The CNIC ICE U.S. Carbon Neutral Power Futures Index exchange-traded fund provides exposure to a blended national electricity price and carbon credits.

Belly Up to the Bar and Be a Buyer of Molson Coors

Bruce Kamich
Jun 6, 2023 11:05 AM EDT

Here's where the charts indicate the stock may be headed.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 07:19 PM EDT CHRIS VERSACE

    AAP Podcast: This Company Is Not Going 'Solo'

    Listen in as I talk with the very diversified Solo...
  • 01:51 PM EDT JAMES "REV SHARK" DEPORRE

    This Weekend on Real Money

    Adjusting Your Trading Approach to Shifting Market...
  • 06:54 PM EDT CHRIS VERSACE

    AAP Podcast: A Tongue -- and a Market -- Twister: 'Get a Debt Deal Done'

    Listen in as the Action Alerts PLUS Podcast tackle...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2023 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login