VIX Near 2016 Lows
Opinion
All of the indexes closed higher yesterday with positive internals as some new closing highs were achieved. However, while most of the chart uptrends remain intact, the data is suggesting upside is limited with the potential for volatility reentering the markets. As such, we are of the opinion that risk/reward is currently not all that favorable, keeping our near term outlook “neutral/negative”. Forward valuation of the SPX at historic highs leaves our intermediate term view “neutral”.
- On the charts, all of the indexes closed higher yesterday with positive internals resulting in the DJI (page 2), MID (page 4), RTY (page 4) and VALUA (page 5) making new closing highs. The uptrends in all of the indexes remain intact with the exceptions of the SPX (page 2) and COMPQX (page 3) that are neutral. So, on the surface, the charts look okay. However, closer observation finds the DJI, DJT, MID, RTY and VALUA all extended well above their 50 DMAs. Such extensions have typically been resolved in one of two fashions. Either an index will trade sideways for an extended period as the 50 DMA eventually catches up or price declines to meet the 50 DMA. So, one is left with either a sideways or negative trend for resolution. We would also note that the VIX (page 9) broke below support yesterday and is now near its 2016 lows seen from mid-July through mid-August. During that period the SPX saw minimal improvement in price that eventually resulted in the September breakdown.
3rd party Ad. Not an offer or recommendation by Investing.com. See disclosure here or
remove ads
.
- Looking at the data, all but one of the McClellan OB/OS Oscillators are in overbought territory (All Exchange:+43.41/+81.5 NYSE:+60.92/+83.46 NASAQ:+52.0/+99.26). Only the 1 day All Exchange is neutral. And while the rest of the data is largely neutral, we now find the OEX Put/Call Ratio (smart money) at a very bearish 3.38 as the pros have loaded up heavily in puts as they bet on some near term downside.
- In conclusion, given the points discussed above, and in spite of the index charts generally positive tone, there are multiple points of evidence suggesting market upside is limited while downside risk is increasing. As such, we remain near term “neutral/negative” for the major indexes. The SPX forward valuation back at historic highs warrants a neutral intermediate term view, in our opinion.