The stock market has become extremely volatile, trading up and down hundreds of Dow Jones points in a day. But our indicators have remained steadfastly bearish throughout the last few weeks. For example, despite several big rally days, $SPX never broke the downtrend line that connects its series of lower highs. Until that downtrend is broken, the $SPX chart will be bearish.
Not every October is a bearish market (at least for a while), but many of them are. Last year, there was an 80-point decline in $SPX from late September into the early part of October; and in 2012, there was a 120-point decline. In 2011, there was plenty of bearish action, but it occurred in August and September, with the actual lows being made on October 1st. In 2010, the market rallied through October.
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The stock market, as measured by the Standard & Poors 500 Index ($SPX) has broken down badly this week. The decline accelerated after breaking through minor support at 1965. The $SPX chart is now in a downtrend.
One more thing re the $SPX chart: It has been 681 trading days since $SPX last touched the 200-day moving average (on November 20, 2012). This is a record just waiting to be broken. Perhaps this will be the time.
Volatility has begun to increase, and that has important ramifications for the stock market, as well as certain sectors. The feature article examines markets where volatility is trending higher (bearish) and where spike peak buy signals might eventually set up.
One of the strongest underpinnings of this bull market has been low volatility and – to an even greater extent – a very positive construct in the $VIX futures. Quietly, $VIX has been increasing since late August, and now it’s becoming much “noisier.”
$SPX broke below the bottom of the previous trading range. That is, $SPX closed well below the previous support in the 1978-1985 area. If it can close below 1978 again today, that would confirm the downside breakout and would generate a confirmed sell signal for the intermediate-term.
Equity-only put-call ratios have been on sell signals for nearly two weeks. As long as these ratios are trending higher, that is bearish for the broad market.
Beginning on October 6th, there will be a change to the way that $VIX is calculated. In this article, we’ll details the new methodology and make some analytical comments about how this might affect $VIX.
Early this week, $SPX closed at a new relative low, and many of the indicators appeared to be turning bearish (for example, $VIX closed above 14). However, prices have rallied since then, and $SPX made a marginal new all-time high today -- both intraday and closing. Is this probe upwards more effective than the probe downwards was a few days ago? It's hard to say, but a further close at new highs would solidify an upside breakout.