Market Internals:  Volume was above average on Friday. Breadth was poor with 99 S&P advancing issues vs. 398 declining.

SPX Market Timer :  All three timeframes fell on Friday.  The Intermediate line fell above the Lower Reversal Zone, now showing a neutral Bias. No leading signals at this time but this chart is close to showing another bullish cluster.

DOW Theory: The SPX is in a long term uptrend, an intermediate downtrend, and a short-term downtrend. The RUT is in a long-term downtrend, an intermediate downtrend, and a short-term downtrend. The Dow is in an intermediate downtrend and short-term downtrend.

VIX: The VIX rose 7.05% to 23.38, inside the bollinger bands. The VIX ratio is 1.32 and still above the mean. The RVX rose 8.98% to 28.53 and is inside the bollinger bands.

Fibonacci Retracements: We are starting to track the Fib Retracements of the main swing lower from the 2080 level down to about 1812; the last overhead target is the 61.8% Fib retracement at about SPX 1978. The 38.2 fib is at 1915, and the 50% fib is at SPX 1947 which is where resistance came in on Tuesday. The price appeared to hold at the 50% fib retracement of the latest swing up from the SPX 1812 bottom.

Support/Resistance: For the SPX, support is at 1812 … with overhead resistance at about 1950, 2000 and 2080. The RUT has support at RUT 872 and 958 with overhead resistance at 1100. The RUT, SPX, and DJI charts are now all showing a “Death Cross” with the 50ma below the 200ma.

Fractal Energies: The major timeframe (Monthly) is super-charged again with a reading of 63. The Weekly chart is reflecting the recent linear trending behavior by showing an energy reading of 45, but is starting to recharge due to recent chop. The Daily chart is showing a level of 53 now which is recovering rapidly from all of the non-linear price behavior. The Intraday chart is just going to follow the higher-timeframe energies at this point.

Other Technicals: The SPX Stochastics indicator fell to 67, mid-scale. The RUT Stochastics indicator fell to 54, mid-scale. The SPX 5/34/5 MACD histograms fell above the signal line, showing a loss of upside momentum. The SPX is inside the Bollinger Bands with Bollinger Band support at 1855 and resistance at the upper band at 1950 and is above the lower band. The RUT is inside the Bollinger Bands with its boundaries at 976 to 1056 and price is above the lower band.

At this point index charts are one-by-one falling into a Bear Market, so it’s now much less of a mystery as to what we’ll see occur in 2016. Even if the SPX and DJI avoid becoming a true “bear,” we will still see very volatile, difficult price action for likely the remainder of 2016. We started to see the counter-trend to the corrective move begin last week, and price is fading to the downside once again, threatening to re-test the January lows. 

Here are the current positions in play with 9 trading days in the FEB cycle, and 29 trading days remaining in the MAR cycle:

• SPY FEB 177/179 Bull Put Spread (12/21) entered for a $.16 credit; per my recent advisories I rolled out to MAR SPY 153/155, and was able to close this trade on a quick pullback for a $.58 debit.
• SPY FEB 218/220 Bear Call Spread (12/24) was entered for a $.19 credit; negotiated exit debit is $.01.
• DIA FEB 143/145 Bull Put Spread (1/11) was entered for a $.16 credit with a 2x-sized position; negotiated exit debit is currently $.03. It would really take a true crash to take out this position but anything can happen, as we know.
• SPY MAR 157/159 Bull Put Spread (1/15) was entered for a $.16 credit; negotiated exit debit is currently $.08.
• SPY MAR 153/155 Bull Put Spread (1/20) was entered as a rollout entry from the FEB SPY trade for a $.16 credit with a 2x sized position. This position is currently showing a negotiated exit of $.06.
• SPY MAR 206/208 Bear Call Spread (2/2) was entered for a $.15 credit with a half-sized position. The current negotiated debit exit is $08.

Defense:  I will play the current positions by Static Risk Management.  The SPY MAR series has a tremendous amount of room to work with, an effective 470 point wide iron condor. .

The short-term focus is still on the FEB DIA positions. There are two dynamics in play right now; there is still a lot of distance between the current price and the short DIA strike price, and there are just a handful of days left to trade in this cycle. Yes, I could close down the DIA trade for pennies today but the transaction costs are pretty brutal, so I want to do everything I can to just let the position expire OTM for max profit. The DOW is holding up better than every other index at this point, so as long as the price does not “take out” the January lows just below DIA 155, then I will do nothing.

Offense: We are finished with our FEB and MAR cycle offense. There is just not enough time to layer on more call spreads in the MAR cycle. If we see this sell-off extend lower, then we will start to scope out APR put spreads on the SPY. If the price rallies from here, then we’ll look at resistance levels that we want to stay above. APR offense will begin in the last week of February, unless we see a shock event to the downside in the near term.

Thoughts on current swing strategies:

• 8/21 EMA Crossover – Nothing in play at this time.
• RSI(2) CounterTrend – This setup is best played on stocks above their 200dma.
• Squeeze/60 Minute – awaiting the next signal.
• Daily S&P Advancers – if I see the number of daily S&P500 advancers drop into single digits near the close of any trading day, I will go long shares of the SSO. I saw this signal during the day on (1/15) so I went long 100 shares of the SSO at a cost basis of $52.59. Per Thursday’s advisory I executed a stop at the $54.34 level, so we made a profit of $175 before commissions on this swing trade, or a 3.33% return on capital. It’s tough to get longs to work out in a Bear Market.