Will it, or won't it? The S&P 500 tested a key technical ceiling on Thursday, and for a brief period was even at an all-time record. The bulls backed off just a bit, however, to leave the index right at that make-or-break line without actually moving above it. On the other hand, the lull wasn't nearly enough to call it a failed breakout effort. The S&P 500 still ended the day with a gain, and its close at 4239.18 was still a record-high close. Stocks are right on the fence. Take a look.
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The momentum is still leaning in a bullish direction. The encounter with – and then bounce up and off of – the 20-day moving average line (blue) worked, and the market is still logging higher lows. The bigger trend is also bullish. This is evident with nothing more than a passing glance, noting the fact that all the key moving average lines are sloped upward now, and the S&P 500 remains above rather than below all of them. It's arguable the bulls and buyers simply lost their nerve on Thursday when records came into view. Such a move is event is more of a process than an event, so it could and should take more than one day to make happen.
Nevertheless, this isn't exactly the bold message the bulls needed to send the first time they were really tested.
The curiosity here is the Volatility Index, or the VIX, at the bottom of the chart. It's already "too low" for the market's own good, as lower VIX readings are typically seen at market highs. It finally started to look like the VIX was going to curly upward this week after once again finding a floor near 15.8 (green, dashed). Thursday's sizeable setback for the Volatility Index, however, calls that budding uptrend from the VIX into question.
Maybe this is the washout for the VIX that sets up the more prolonged runup that coincides with a bigger market correction; the selloffs floor at 15.8 certainly speaks volumes about where the absolute support level might be. Or, perhaps the sharp pullback from the VIX may be an indication of the shape of things to come. Like the S&P 500's close at the resistance at 4238 (blue, dashed), the VIX's close at 16.1 aligns so closely with a well-established floor that we can only conclude – once again – traders are hesitant to make a big commitment here. Makes sense, given the circumstances, but again…the bulls would ideally be able to send a clear message when they needed to the most.
This isn't a sign that a pullback is going to take shape from here. As was noted, a break to record highs is and should be more of a process than an event. Thus far though, the process has stopped short of a critical make-or-break level.
Friday is going to be a pivotal day.