STOCKS TRADE HIGHER ON DEBT OPTIMISM -- SHORT-TERM INDICATORS TURN POSITIVE AS VIX TUMBLES -- MIDCAP INDEX IS CLOSE TO NEW RECORD
STOCK TRADE HIGHER WEDNESDAY MORNING... Stocks shrugged off yesterday's late selloff to trade higher this morning. Investors apparently believe that politicians in Washington can't be reckless enough to push the U.S. into default. The first three charts show the recent improvement in three major U.S. stock indexes. Chart 1 shows the Dow Industrial SPDR (DIA) trading at a new October high today and well above its 50-day average. The 14-day RSI line has crossed above 50, while daily MACD lines have turned positive. Chart 2 shows the S&P 500 SPDRs (SPY) nearing a test of its September high. It's short-term indicators have turned positive as well. Chart 3 shows PowerShares QQQ Trust trading at a new 14-year high. The QQQ appears to have negated yesterday's high volume selloff. Needless to say, these short-term uptrends could end if Washington fails to reach an agreement. The market apparently believes odds of that happening are very small.
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Chart 1
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Chart 2
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Chart 3
VIX TUMBLES... Another sign that investors are more optimistic is this week's sharp drop in the CBOE Volatility (VIX) Index. Chart 4 shows the VIX falling sharply this week after failing a test of its June peak near 20. A lower VIX is good for stocks.
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Chart 4
MIDCAP INDEX TESTS OLD HIGH ... A recent message showed small cap stocks trading at a record high. The next test is coming in the midcap space. Chart 5 shows the S&P 400 Mid Cap Index ($MID) trying to break out to a new record. A close in new high ground would be positive for the midcap group and the market as a whole. That's because the large cap S&P 500 index usually follows the lead of small and midcap stocks.
