Volatility In Stock Market

S&P500 has just broken to new highs for the year. That event should be quite bullish going forward. At the same time, I should note that the internal strength of the U.S. market is weakening as fewer and fewer stocks and sectors are participating in the move higher. So, while the trend is higher, we should remain cautious that the market may be fast approaching a top.
Today, I’d just only to briefly touch on the topic of volatility. For the past year or so, the VIX index has traded between 12 and 21. The volatility has been quite subdued and has spiked higher for brief periods of time. If you look a the chart of VIX, you will clearly see this sideways pattern. That’s exactly what happened back in 1999 and 2000. The volatility was low and at some point started to rise.

When is the trend in volatility going to change? I don’t know, but I believe at some point we will see a steady rise and VIX will continue higher abv 21 without making a spike there. For now though, the volatility remains subdued and that’s a factor that supports higher stock prices.

In summary, the technical evidence still support the bullish side for S&P500 and the volatility so far also supports this bullish case. We need to see a sustained move abv 21 in VIX in order to confirm a sustained change of the market trend.

Trade with the Trend!

Alexander
http://www.Trendrecognition.com

Disclaimer: The services provided by Trend Recognition Ltd are intended for informational and educational purposes only. At no time will Trend Recognition make specific recommendations for any specific person, and at no time may a reader, caller or viewer be justified in inferring that any such advice is intended. The service is not a recommendation to buy or sell securities or an offer to buy or sell securities. The publishers of Trend Recognition website are not brokers or registered investment advisors and are not acting in any way to influence the purchase or sale of any security and/or its derivatives. You should not rely solely on the information provided on this site in trading.

Stock Market Correction (Update)

Last week I pointed out 4 important things we had to look at in order to conclude if the U.S. stock market would soon resume its previous rally, or instead, would continue its correction from the September top. To re-cap, these 4 factors were:

1.) emerging markets: should a bottom is made, they should turn up first in my opinion.

2.) the behaviour of VIX: Should it climb above 17.0 or 18.00 level, that would be quite a negative signal, suggesting much more downside.

3.) leading stocks like AAPL should find support and turn up either first or together with the general market.

4.) the price pattern on weekly chart of semiconductors (SOX index or SMH ETF) was really important. If this sector would to break below its July 2012 low, that would be a major bearish signal

Now, the market tried to rally last week but the rally faded quickly and we witnesses strong selling pressure on Thursday and Friday. As result, we have:
1. a clear pattern of lower lows and lower highs on Nasdaq 100 chart
http://www.trendrecognition.com/images/stories/2012/indexes2012/nasdaq_st_20121021.gif
But so far S&P500 has hold above the key support at 1425.
2. Semiconductors are still unde pressure but they have not moved below their July 2012 low.
3. Leading stocks like AAPL and GOOG have been smashed but we cannot say firmly that they are now in bearish Medium-Term trends.
4. VIX has moved above 17 and thus it has broken its declining trend since July 2012.
5. So far the emerging markets have held, but are still near critical support levels.

Bottom line, the bearish evidence is increasing that the U.S. stock market has already made an important top. However, since the top that I expect is one of massive proportions, it may take much more time to form. In other words, the Short-Term picture is still mostly mixed and requires more caution that usual.

Trade With The Trend!

Alexander
Trendrecognition.com

P.S. Do you want more stuff from us – go here to subscribe for my weekly newsletter

Disclaimer: The services provided by Trend Recognition Ltd are intended for informational and educational purposes only. At no time will Trend Recognition make specific recommendations for any specific person, and at no time may a reader, caller or viewer be justified in inferring that any such advice is intended. The service is not a recommendation to buy or sell securities or an offer to buy or sell securities. The publishers of Trend Recognition website are not brokers or registered investment advisors and are not acting in any way to influence the purchase or sale of any security and/or its derivatives. You should not rely solely on the information provided on this site in trading. See the full disclaimer here.

 

More Serious Correction in U.S. Stock Market

Two weeks ago I discussed with you the possibility that the U.S. stock market might have topped out . Since then we have seen further evidence signalling that at least a more serious downside correction or consolidation has started. Now the question is, how deep this correction may be and when it will be time to buy.

First and foremost, I think that one should follow the trend no matter what. Sometimes that’s not easy though because the trend may be higher on the daily and weekly chart (as one can see now on Nasdaq 100 charts), but it may be down on hourly chart (as it is right now on Nasdaq 100: just take a look at this hourly chart: will you ever go against such strong trend?:)

http://www.trendrecognition.com/images/stories/2012/indexes2012/nq100_vst_20121015.gif

Now back to our main questions – where the market can find a bottom. I think several things should be observed when trying to find the answer:

1.) emerging markets: right now emerging markets ETFs have started to underperform the U.S. stock market agian. Should a bottom is made, they should turn up first in my opinion.

2.) the behaviour of VIX is very important. Should it climb above 17.0 or 18.00 level, that will be quite a negative signal, suggesting much more downside.

3.) leading stocks like AAPL should find support and turn up either first or together with the general market.

4.) the price pattern on weekly chart of semiconductors (SOX index or SMH ETF) is really important here. Go to the weekly chart of this sector and you will see a huge Contracting Triangle from early 2011. If this sector breaks below its July 2012 low, this Triangle will be considered a bearish one. In this case, I would not hope to see a major low soon.

Bottom line, I think one should pay attention to the factors mentioned above for early signs of the market direction now. Right now based on the wave intrepretation of the weekly chart of S&P500 and Nasdaq 100, I incline to think that the U.S. stock market has arleady topped out and is heading lower in a significant bear market.
http://www.trendrecognition.com/archives?view=ap&aid=5400

Trade With The Trend!

Alexander
Trendrecognition.com

P.S. Do you want more stuff from us – go here to subscribe for my weekly newsletter

Disclaimer: The services provided by Trend Recognition Ltd are intended for informational and educational purposes only. At no time will Trend Recognition make specific recommendations for any specific person, and at no time may a reader, caller or viewer be justified in inferring that any such advice is intended. The service is not a recommendation to buy or sell securities or an offer to buy or sell securities. The publishers of Trend Recognition website are not brokers or registered investment advisors and are not acting in any way to influence the purchase or sale of any security and/or its derivatives. You should not rely solely on the information provided on this site in trading. See the full disclaimer here.

 

Bullish Summer

Last week I discussed the current strength of S&P500 and said that the most likely upside target for this upmove in U.S. stock market was seen at 1454 Fibonacci level. I also pointed out a 3 disturbing factors that may stop this advance. One of these has been resolved in the favor of the bulls. Namely,  Nasdaq 100 and Nasdaq Composite broke to new highs (within the upmove from the June’s low) on Friday and thus confirmed the uptrend in S&P500. However, as always, trading and investing in the stock market is not easy. The other two factors remain a concer here:
– Dow Jones Transportation index continues to lag the DJIA. That usually is not a healthy sign as per Dow Theory. If the broader market is to continue higher, this non-confirmation should be resolved quickly as well.

– VIX is near its yearly lows. Of course, it can stay there for some time, but still, this complacency is a cause of concern

Still, the bullish breakout in Nasdaq 100 makes me more confident about the long side now. As I see it, the market may continue higher for another month or so before the final stock market top is reached sometime in the fall (or early winter).

Elsewhere, gold continues to trade near its key support on the weekly chart at 1520. It has a Short-Term resistance now at 1640. Break above there will likely be a bullish sing.
Crude Oil has remained in small uptrend from its late June’s low but is still below its declining 100-day moving average. If it can go above there, it can rally for a month or two as well within its broad sideways topping formation (a potential reversal triangle on its weekly chart).

 

Take care,

Alexander

P.S. Do you want more stuff from us – go here to subscribe for my weekly newsletter

Disclaimer: The services provided by Trend Recognition Ltd are intended for informational and educational purposes only. At no time will Trend Recognition make specific recommendations for any specific person, and at no time may a reader, caller or viewer be justified in inferring that any such advice is intended. The service is not a recommendation to buy or sell securities or an offer to buy or sell securities. The publishers of Trend Recognition website are not brokers or registered investment advisors and are not acting in any way to influence the purchase or sale of any security and/or its derivatives. You should not rely solely on the information provided on this site in trading. See the full disclaimer here.

Downtrend Ready To Resume

Well, as you know I expected the decline that started in early July to find support above the late June’s lows (1310 in S&P500) and then one final rally to develop back to 1378 level. The last week’s price action was exactly what I was looking for. As you know S&P500 topped out on Thursday at 1380 level (right at the 1378 Fibonacci level) and then declined sharply on Friday on renewed worries about Europe. Today, the market is called to gap down. Once we see a move below 1325 (ideally this week) I’ll be able to confirm that the next leg down to the early June’s lows (and below) is under way.  Here’s my chart from the latest Short-Term update in case you haven’t seen it yet:

http://www.trendrecognition.com/images/stories/2012/indexes2012/sp500_st_20120722.gif

One final piece to the puzzle is the VIX index. It is still on solid downtrend on its daily chart and that is bullish for stocks. And as discussed before, I expect VIX to start moving higher either before or right with the decline in S&P500. So, if the market indeed begins a true leg lower, we should see a sharp move higher in VIX this week.

Now, not only the stock market looks weak now, but most of the FOREX markets are in downtrends too. EUR is already in its acceleration phase down vs USD, GBP is still holding above 1.5260 key level but looks negative. And finally, USD is declining vs. JPY – again a typical picture when there is a financial uncertainty. Crude Oil has reversed today on the downside as well. Among the markets that I follow, only gold still holds above its support near 1520. I don’t know if it will continue to hold that level, but as long as it does, it keeps its bullish prospects alive. You may take a look at a recent article about gold that I’ve writen for you.

http://www.trendrecognition.com/education/articles/192-will-the-long-term-uptrend-in-gold-resume

Take care,

Alexander

P.S. Do you want more stuff from us – go here to subscribe for my weekly newsletter

Disclaimer: The services provided by Trend Recognition Ltd are intended for informational and educational purposes only. At no time will Trend Recognition make specific recommendations for any specific person, and at no time may a reader, caller or viewer be justified in inferring that any such advice is intended. The service is not a recommendation to buy or sell securities or an offer to buy or sell securities. The publishers of Trend Recognition website are not brokers or registered investment advisors and are not acting in any way to influence the purchase or sale of any security and/or its derivatives. You should not rely solely on the information provided on this site in trading. See the full disclaimer here.

How One Can Use VIX in Their Analysis

As you remember, last week I said I expected a move lower in U.S. stock market but I didn’t expect a break below the key support levels (late June’s lows – 1310 in S&P500 and 2510 in Nasdaq 100). As you know, the stock market traded lower but found support above these lows and rallied shaply on Friday. Today, I want to elaborate a bit on what helped me to make this good call.

First and formost, it was the wave strucutre.  The rise from early June’s low was looking incomplete. You can see my labelling of the Nasdaq 100 hourly chart that I post today. Pretty much that was the pattern I was looking for a week ago as well.

http://www.trendrecognition.com/images/stories/2012/indexes2012/nq100_vst_20120716.gif

The second very important thing was the speed of the decline from the early July’s top. The decline was slower than the preceding advance, meaning the larger trend was still up or sideways but not down.

And finally, it was the VIX action. As many of you know, VIX measures the volatility in the market. My experience has taught me that when the market is about to make a top and to start a significant decline, usually the volatility starts to increase just before that. As you recall, I pointed out last week that VIX was moving lower (i.e. volatility was decreasing) as the market was declining which was a sign that the market was not ready to turn down in earnest.

What do I expect now? I think the Friday’s rally will be short-lived and the market will not be able to move substantially above its highs from the early July. Most likely the stock market will spend a few more days trading sideways within the recent range and than I expect to see another big move lower to break the early June’s lows!

Take care,

Alexander

P.S. Do you want more stuff from us – go here to subscribe for my weekly newsletter

Disclaimer: The services provided by Trend Recognition Ltd are intended for informational and educational purposes only. At no time will Trend Recognition make specific recommendations for any specific person, and at no time may a reader, caller or viewer be justified in inferring that any such advice is intended. The service is not a recommendation to buy or sell securities or an offer to buy or sell securities. The publishers of Trend Recognition website are not brokers or registered investment advisors and are not acting in any way to influence the purchase or sale of any security and/or its derivatives. You should not rely solely on the information provided on this site in trading. See the full disclaimer here.

Gold, Stock Market and VIX

Last week I talked about my bearish expectations for EUR and GBP vs U.S. dollar and about the Short-Term prospects in gold. Last week I also wrote an article about the technical picture in gold. You can read this brief article here:

http://www.trendrecognition.com/education/articles/192-will-the-long-term-uptrend-in-gold-resume

Now, today I want to say a few words on the stock market. As you know U.S. stock market bottommed in early June and staged a good rally from there. In early July the rally accelerated a bit, but then we saw a sharp decline last Friday. And it appears this rally may be over. That’s one of the main reasons I do not like to trade these oversold rallies – becase by their nature they start out of the blue and then end suddenly. Right now the daily chart is not very bearish yet, so we may see some choppy trading and another rally attempt later this week, but eventually I expect to see a resumption of the decline that started in early May. A decline below 2510 in Nasdaq 100 and 1310 in S&P500 will be a good sign that the bears have taken control again. You can see the daily chart of S&P500 for a clue about what I expect here:

http://www.trendrecognition.com/images/stories/2012/indexes2012/sp500_st_20120708.gif

Now, let me give you my reasoning why I do not expect to see an immediate decline below the key levels stated above. First, let me be clear, it is quite possible that the larger-degree downtrend has already resumed, but that’s not the most likely scenario. Why? – Because of the behaviour of the VIX index. If you take a look at VIX, you will be surprised to see that it actually declined on Friday despite the huge decline in the stock market (as you know, it is more natural to expect VIX to rise when stocks decline). That fact tells us two things: 1.) the market is likely not ready to tumble from here as usually the increased volatility preceeds the market decline and 2.) there is a huge complacency at the market, i.e. the sentiment is extremely one-sided as almost everyone is bullish. This second thing is a good reason why the next decline is likely to be deeper than the 1st one that we experienced in May.

Take care,

Alexander

P.S. Do you want more stuff from us – go here to subscribe for my weekly newsletter

Disclaimer: The services provided by Trend Recognition Ltd are intended for informational and educational purposes only. At no time will Trend Recognition make specific recommendations for any specific person, and at no time may a reader, caller or viewer be justified in inferring that any such advice is intended. The service is not a recommendation to buy or sell securities or an offer to buy or sell securities. The publishers of Trend Recognition website are not brokers or registered investment advisors and are not acting in any way to influence the purchase or sale of any security and/or its derivatives. You should not rely solely on the information provided on this site in trading. See the full disclaimer here.

Emerging Markets Don’t Confirm The Last Top In U.S. Stocks

Last week I talked with you about the extreme sentiment as observed by the VIX index. Just to summarize my views from last week, I think that VIX and put/call ratios are the best sentiment indicators to use as they show what people are actually doing, not what they say they think might do. Since then VIX has fallen even further. At one point last week VIX was below 14! Today it gaps up at the moment, but is still in strong downtrend. Bottomline is, I still believe VIX displays a strong complacency at the marketplace.

The other interesting thing about the market is the internal strength, but not measured by the number of stocks advancing on NYSE vs. number of stocks declining, but by the performance of international markets. The most notable divergence right now is displayed between the S&P500 index and the big emerging markets: China, India, Russia, Brazil. Last week all these markets (that comprise the BRIC index) did not perform well and lagged heavily the U.S. stock market. They remained below their early March highs and today almost all of them are down by 1.5% as measured by their ETFs pefromance in the opening trading. That’s not a good sing in my opinion. Of course that does not mean that the U.S. stock market should reverse here, but still that’s a sign that the overall global outlook is not that positive now.

S&P500 however, remains in strong uptrend as it has moved above the important 1378 level. So, the path of least resistance remains higher. But the extreme sentiment and the lagging performance of emerging markets tell me, we are likely late in this uptrend. A move below 1340 is needed to confirm that a Short-Term top has finally been found. That may not be too far in the future, but in the meantime the U.S. stocks can continue their march higher….

Best Regards,

Alexander

Disclaimer: The services provided by Trend Recognition Ltd are intended for informational and educational purposes only. At no time will Trend Recognition make specific recommendations for any specific person, and at no time may a reader, caller or viewer be justified in inferring that any such advice is intended. The service is not a recommendation to buy or sell securities or an offer to buy or sell securities. The publishers of Trend Recognition website are not brokers or registered investment advisors and are not acting in any way to influence the purchase or sale of any security and/or its derivatives. You should not rely solely on the information provided on this site in trading. See the full disclaimer here.

Extreme Sentiment

S&P500 reached my 1378 target a week ago. Last week it dipped lower to the 1340 level but then bounced back at the end of the week and closed at 1370 level.

The most important thing however is happening this morning. VIX is finally trading near the 15.0 level. That’s an extreme in the investors’ sentiment. Most of the people focus on investor intelligence and other surveys to determinte the extremes in the sentiment. I watch some of these surveys too. However, the problem with these sentiment measures is that measure what people are saying, not what they are actually doing. And years ago I found that quite often people would say one thing and would then do exactly the opposite. So for me, the ultimate sentiment can be seen on the market – from what the traders are doing, not from what they are saying. Good measures in that regard are the VIX index and put/call ratio. With the VIX at 15 or so this morning, we are at an extreme in my opinion. If you recall, a few weeks ago I said that the market would likely bottom only when VIX declined below 17 or lower. We are finally below 17 and therefore I think a top is fast approaching. Of course, the most important indicator remains the price itself, so one should always respect the underlying market trend. To have a signal that a Short-Term top is in place, I think that a move below 1340 is needed in S&P500. Once such a move occurs, I will look for a deep retracement of the rally from the mid-December 2011 low.

Best Regards,
Alexander

Disclaimer: The services provided by Trend Recognition Ltd are intended for informational and educational purposes only. At no time will Trend Recognition make specific recommendations for any specific person, and at no time may a reader, caller or viewer be justified in inferring that any such advice is intended. The service is not a recommendation to buy or sell securities or an offer to buy or sell securities. The publishers of Trend Recognition website are not brokers or registered investment advisors and are not acting in any way to influence the purchase or sale of any security and/or its derivatives. You should not rely solely on the information provided on this site in trading. See the full disclaimer here.

How To Recognize a Top In The Stock Market?

The U.S. stock market continues to be very strong as any pullback remains shallow and is quickly met by buying demand. The current uptrend has been intact now for almost two months now (since mid-December 2011) without any significant interruptions. The market is overbought and overextended but these concepts do not mean the market will pullback. So, how we can recognize that the market is close to a top or has made one?

The most important thing to watch, of course, is the price action. As long as there is a series of higher highs and higher lows on the daily and hourly charts of main stock indices, the trend is higher and should be respected. But one can derive further knowledge if they take a look at two other important factors:

1.) The trend in VIX (volatility) index. Usually VIX is trending lower as the market moves up. Then as the top approaches, VIX starts to be more volatile. For example, VIX rose sharply last week (first full trading week of February) from 16 to 21. But usually the first rise in VIX is not the time when the price trend reverses. What can we expect to see, is another decline in VIX back toward its most recent lows (near 16) and only the second or the third attempt higher will be accompanied by a trend reversal in stock prices. You can see the dynamics of VIX between May and July 2011 for guidance of what we can expect here.

2.) The second thing to watch is the stock participation in the rally as it nears its end. As the rally exhausts itself, it is logical to expect fewer and fewer stocks and sectors to participate in it. So, it is important to pay attention every week to the trend in some major stocks and major industry ETFs (or even international country ETFs) for clues. Once you start to see more stocks and ETFs as short sale candidates as the main indexes advance, it means the rally is in its late stages.

Going to the current market, I start to see some signs of weakening but a top is not there yet. I think we need to see at least one more fall in VIX before a top can be made. As always, I will update you with my views in my weekly and daily comments that I post regularly on my web site.
And if you have not seen my stock market video analysis from this weekend, here’s a link to see it:

http://www.youtube.com/watch?v=KiCa6-L1KmM&list=UU38iEelEfO1PcaKXa_5VSTA&index=1&feature=plcp

Enjoy your trading this week!

Best Regards,

Alexander

Disclaimer: The services provided by Trend Recognition Ltd are intended for informational and educational purposes only. At no time will Trend Recognition make specific recommendations for any specific person, and at no time may a reader, caller or viewer be justified in inferring that any such advice is intended. The service is not a recommendation to buy or sell securities or an offer to buy or sell securities. The publishers of Trend Recognition website are not brokers or registered investment advisors and are not acting in any way to influence the purchase or sale of any security and/or its derivatives. You should not rely solely on the information provided on this site in trading. See the full disclaimer here.