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As you may know, I like to find situations in which all of the ducks are lined up in a neat row. Unfortunately, because favorable seasonality is no longer a bullish prop for the market, the current situation doesn't quite qualify, but it's close.

First, the news backdrop is perfect. What could create more anxiety (and more bearishness) than talk about Iran developing nuclear weapons? Keep in mind that people tend to sell stocks at the talking stage, and that creates opportunity for those who are willing to bet that nothing will happen. Right now, that is the obvious bet: that nothing will happen, at least for the foreseeable future.

We have surging oil prices, too, with crude likely headed back to $70. That, too, should weigh on the market. And we have the nonstop meltdown in bonds and the ratcheting up of interest rates.

So, when the news background and the fundamentals are pretty grim, that is, of course, when you want to buy stocks. Not when things are all rosy, and certainly not when prices are at multiyear highs (As they were just last Friday morning, remember?).

Technically, things could be better; many of my indicators are suggesting that the market has really begun to roll over. Breadth statistics have turned quite ugly in recent sessions. But that, of course, is contributing to the considerable bearishness (which I like to see) and also producing the oversold condition in many of my indicators (the McClellan Oscillator closed Tuesday at -200, its most oversold level in months).

So with the usual caveats that this is more art than science and that buying into panicky selloffs carries more than the usual risks, I now am betting on a near-term low approaching.

The recent increase in bearishness is perhaps most evident in the chart of the VIX, which shows Tuesday's spike to a two-month high of 13.00 (on a closing basis). This high close in the VIX was last exceeded on Feb. 13, when the VIX closed at 13.35. So, one might ask, was that a time to be buying or selling stocks?

That day, Feb. 13, the

S&P 500

cash closed at 1262.86, and just six sessions later the S&P closed 30 points higher. In fact, since the Feb. 13 close, the S&P has not even been back below the 1270 level on a closing basis.

Again, this isn't exactly rocket science, so it's hard to understand how this indicator can be so widely misinterpreted and misused. But (fortunately) it is. And right about now, just as we look for another near-term low, there will be those who will view Tuesday's new closing high in the VIX as a sell signal and accordingly will be selling short Wednesday, in part because of the new high in this indicator. Oh well, I won't complain. We need these guys.

The March 14 low in the VIX of 10.53 didn't quite qualify as an outright sell signal, because it didn't break the December low of 10.15. But it was a pretty good warning. Now, however, the VIX is telling us something different. It is certainly no longer suggesting that this is a time to sell.

VIX Gives Another Short-Term Buy Signal
Six-month chart


Source: optionsXpress

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On the other hand, the news from the S&P futures isn't quite as encouraging. On the S&P continuation chart below, it is clear that the support at the 1300-1301 level has given way. Now this area, which was once resistance (in the old March contract) and then became support (for the June contract), has morphed into resistance once again. So in the very short term that will be the first order of business for the S&P -- at least in terms of the bullish case: to mount an assault on the 1300-1301 level and convert this area back into support once again.

If it can do this, then the market has a decent chance of a recovery. If not, lower lows lie ahead. Very short term, I suspect the first attempt to pop through the 1301 level will fail. But I wouldn't be at all surprised to see the S&P pop through this area and trade back up to the resistance at the 1310-1311 level in the days ahead.

On the downside, there's a new support level to keep an eye on. That's the 1290 plus-or-minus 1.50 level in the futures, which allows for a pullback to 1288.50. Not coincidentally, this corresponds to the March 10 close and March 13 low in the cash of 1281.58. A break of this level wouldn't necessarily mean that a collapse was imminent, but it would signal that another support level had given way and that lower lows were likely (sooner rather than later).

S&P Futures on the Continuation Chart
Cracking support

Source: Lind Waldock

As for the NDX, though it has taken a pretty good beating over the past few sessions, the picture here is actually somewhat brighter than the S&P's because the NDX at least has not broken its near-term support at the 1700 level, at least not by a meaningful degree.

In fact, all the NDX is guilty of is giving back its April gains. In other words, the Nasdaq 100 has simply pulled back just below its March 30 lows. If that's all it does, that isn't so bad.

Of course, from my current bullish perspective on the Nasdaq 100 (Tuesday, my short-term mutual fund model gave a buy signal in the NDX), I would prefer to see the 1700 level continue to hold, especially on a closing basis. This is important, because any significant break of the support at the 1700 level would open the door to a further decline, possibly to fill that March 29 gap at the 1673 level, as I've shown on the chart below.

And if that doesn't turn the thing back up, there is still the March 13 gap at the 1648 level, which beckons below. I certainly am not looking for a decline to that degree over the near term. But, given the crack in the S&P's support, we must be on the lookout for further selling, even though that's not how I am playing it.

On the upside, I will be looking for a pop back up out of the red channel (visible on the chart below) that covers the 1700-1710 area. The first positive sign would be a move above -- especially a close above -- 1711.26, the March 29 high. That would be the first indication that at least a short-term low might be in place. I will be looking for such a move, and I figure that odds are better than 50/50 that we'll see it.

On the NDX
Previous resistance at 1700 remains intact as support

Source: Lind Waldock

At the time of publication, Schiller was long Nasdaq 100 mutual funds, long Dow Jones mutual funds, long DJ April 110 calls, long QQQQ calls and short QQQQ May puts, although holdings can change at any time.

Schiller is owner and editor of the Short-Term Consensus Hotline. He is a stockbroker and options principal with brokersXpress, inc. Under no circumstances does the information in this commentary represent a recommendation to buy or sell stocks. While he cannot provide investment advice or recommendations, he appreciates your feedback;

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