Why is S&P 500 rallying ?

What caused the market to rally today? Let’take a look. It all started with Futures were up big again this morning. The SPY was sitting at 273 in the premarket. In the premarket charts, we saw that the 10 moving average line is below the 20 moving average lines on the 10, touching on the 5 and above it on the 15-minute chart. Still, the premarket overnight looked like a big bull flag. We also are seeing a higher volume this morning compared to recently.

For that, we want to go back to Friday’s close on the VIX. While I typically look at the hourly chart, the daily chart will help here for visualization purposes.

VIX Daily Chart

Friday’s close on the VIX did two things. First, it closed at the dead lows of the week. Second, it closed below the gap-fill of the candle with the orange trendline.

When you get weekly closes that break below several key support levels, that tends to lead to an immediate release the following day.

In this case, you had the VIX falling all day on Friday along with stocks. That RARELY happens. One of the two was wrong. Given how untrustworthy equities have been, the VIX was the signal for me. That’s why there was a pretty good chance we’d see a rally on Monday in stocks.

The Closing Auction

So let’s finally round off the trading day shall we?

The last part of the trading day comes between 3:00 pm ET and 4:00 ET. For the most part, the major action comes in the last 30 minutes of the trading day. That’s where you get folks jockying for position for the next day, or simply covering their butts from bad trades that day.

Volume gets pretty heavy during this time period, especially in the final minutes of trading. You get massive imbalances for orders at the close that can whip stocks around quickly. In fact, there are prop firms that specialize in this type of trading.

For the most part, unless you have a strategy specifically for this time of day, it’s best not to trade through here. If you have stops that use daily closes, execute those. It’s also a decent time to position yourself for the following day’s open. However, you’re holding all the overnight risk, so be prepared!