The market continues to be firm.  But are there red flags showing signs of a potential technical break?

As I look at this market, it’s back to getting mixed signals.  But that doesn’t mean that there aren’t winning trades out there with a clearer directional bias – up or down.  For example, in last week’s video, I mentioned the potential for ICLN to get a firm technical footing and a bullish move:

As you can see, ICLN has had quite a nice spike in just the week since evaluating that chart.  The upside still appears to be there, especially with oil prices firming, but having missed some of the initial move and looking at a broad market potential for pullback, perhaps it’s better to look for a new trade right now.

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So, I’ll look through some of the major indexes as a way to get a better feel for what’s going on.  As I look at the tech sector, I see no signs of slowing down on this rally:

QQQ just seems to keep plugging along with no end in sight.  But there is one very concerning chart out there for me right now, and that’s TLT:

Interest rates are drifting higher (causing government bonds to drift lower).  This has been my main signal of concern for the market.  If TLT can make a new low, we could be in for a more substantial correction in the markets.  Simply testing the prior lows looks almost inevitable, which should put some weight on the markets.  And yesterday’s action in the S&P 500 illustrates to me some of the potential danger:

SPY dropped below the 10-Day Moving Average before ultimately closing just above that technical level, and while that’s not a major indicator, it could be just the beginning of a bigger bearish move for the broad market.  That could lead to a more significant increase in the VIX index, and that’s where I’m looking for a trade right now:

A move back to $16 for the VIX would not seem out of the question, and there’s potential for much more if traders and investors start to look for downside protection of long portfolios or start betting on a true liquidation instead of a minor pullback.  As a result, and with VVIX (the implied volatility of VIX options) near lows, I am looking at some plays with outright call options in VIX and the VXX ETF.  Beyond that, there are many individual stocks setting up with bearish potential, and I’m continuing to evaluate those multiple times per day.

If you want to know more about options and how these technical signals can be leveraged in various underlying stocks, make sure you check out my Outlier Watch List, where I give a long list of stocks I’m considering for bullish and bearish entries via options.

And as always, please go to to review how I traditionally apply technical signals, volatility analysis, and probability analysis to my options trades.  And if you have any questions, never hesitate to reach out.

Keith Harwood