The Volatility Index ($VIX) is considered one of my key sentiment indicators and it has a historical past of precisely predicting corrections and bear markets. We have had neither with out the VIX first clearing an vital hurdle within the 17-20 vary. Bear markets require an enormous dose of worry and panic and the VIX acts as our inventory market meteorologist – one which predicts main market storms as they’re approaching. All through this complete secular bull market, the S&P 500’s poor durations of efficiency have been marked by VIX readings above 20. Slightly than repeat these outcomes on this article, you’ll be able to try a Buying and selling Locations article that I wrote in November 2023, “What Are The Possibilities Of A Market Crash? This Indicator Says ZERO!”
On current Buying and selling Locations Stay YouTube exhibits and in my common emails to our EB.com members, I’ve persistently mentioned the numerous enhance in threat that accompanies a VIX shut above 20. I don’t take it calmly and neither must you. However try what occurred over the previous few weeks because the VIX spiked and neared 20:
We had a straight-up transfer off the October 2023 low and the above chart merely reeks of slowing bullish momentum all through the second half of Q1. I anticipated March weak spot, nevertheless it was delayed into April. That closing transfer decrease in October was characterised by the massive VIX enhance – in the end with closes on the VIX above 20. As soon as that VIX returned beneath 17, the promoting and correction was over and the bull market resumed. Therefore, the explanation for my November article linked above.
After I consider a bounce just like the one we had final week, I prefer to see if there is a resumption of the “threat on” market atmosphere. Listed below are a number of ratios that I prefer to comply with and the way they responded in the course of the bounce:
These 3 ratios all bounced larger with the S&P 500, however all stay in downtrends that started earlier than the S&P 500 promoting did. That tells me that “threat off” nonetheless stays in play to a point and we’ll want additional affirmation {that a} short-term backside is in play. IF we do flip decrease once more, watch the VIX. If we see contemporary new lows on the S&P 500 and the worry dissipates (ie, VIX stays beneath 20), I would view that as a constructive sign.
Over the previous two weeks, I’ve shared my finest upcoming earnings reviews within the finance and industrials sectors. They each (AXP and GE) noticed very robust reactions to their quarterly outcomes. Tomorrow morning, I will share my high know-how choose with our FREE EB Digest e-newsletter subscribers. If you have not already subscribed and also you’d prefer to see the know-how firm that I consider will report blowout quarterly outcomes forward, merely CLICK HERE and enter your identify and electronic mail tackle. There isn’t any bank card required and you might unsubscribe at any time.
Have an incredible week forward and completely satisfied buying and selling!
Tom
Tom Bowley is the Chief Market Strategist of EarningsBeats.com, an organization offering a analysis and academic platform for each funding professionals and particular person traders. Tom writes a complete Every day Market Report (DMR), offering steering to EB.com members each day that the inventory market is open. Tom has contributed technical experience right here at StockCharts.com since 2006 and has a elementary background in public accounting as effectively, mixing a novel ability set to method the U.S. inventory market.
