Increasing deal momentum over the last month or so has been providing support for the market, as larger companies seeking growth seem prepared to pay any price. Indeed last week’s activity may have been sufficient to turn the small capitalization indexes along with “growth at any price stocks” higher once again cheered on by Priceline’s move to acquire OpenTable.
Market Review
S&P 500 Index?(SPX) ?the fading signals at the top mentioned last week?increased this week as overbought SPX dropped down to test the first support level at 1925. The VIX advanced modestly to 12.18, while the VIX futures premium closed at 9.89% just in the yellow caution zone while the implied volatility of the June VIX call options increased from 64.16 to 93.43 and the July calls increased from 58.93 to 72.27. The next level to watch is support at the breakout above the May 13 high of 1902.17.
iShares Russell 2000?(IWM) ?the divergence leader advanced back up to 117.48 as anticipated and then turned lower setting up a right shoulder of a potential a Head & Shoulders Top with the neckline way down at 107.50. However, on the subsequent decline it found support at 115 and could now turn higher if last week’s M&A enthusiasm adds more support to the small caps and “growth at any price” stocks come back into fashion. Watch for higher highs and higher lows for the next few days.
Market Strategy
Although M&A news no doubt helped the S&P 500 Index Friday, there is still a chance it will attempt to test breakout support at 1902.17 so keep an eye on the VIX futures premium below 10% along with the?CBOE S&P 500 Skew Index?(SKEW) ?for a close above 127.97, and consider implementing hedges on closes above 130.?