During the past days the market has almost completely ground to a halt. The ADX indicator is extremely low, which means the market has no direction. This usually occurs before a larger directional move. The volume during the last 8 sessions was remarkably low as well, but the accumulated volume is still looking good. The latter seems to indicate the markets desire to continue moving upwards, while consolidating in this strange melt up pattern to reset the overbought conditions.
However, approaching the zone of strong resistance (anything below 1422 from here) at such low volume is a serious warning sign. The market is in a holding pattern awaiting a big bang. The drying up of the volume has created a vacuum above and below, that will create very little support or resistance for any directional move to occur form here.
A false break is not unreasonable to expect, so I would give myself a little bit of room to maneuver and avoid too tight stops and limits, to keep the sinister machines from cleaning out my account.
Stay alert. This is an odd situation. The RSI is still diverging on the hourly chart, but that is essentially what is necessary to start a new move up, so I wouldn’t pay too much attention to this kind of action right now.
The bond yields in Spain and Italy have eased and the bond yields in Germany, US and Japan have increased during these past sessions. Unless there are more bad news to digest, the market will resist being pulled down hard. The absence of buyers and sellers alike will tend to amplify some of the moves though.
VIX shows an extreme level of complacency, especially during options expiration week. We need to see what happens going into Friday and Monday.