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Despite what you might read or hear elsewhere, the equity markets remain in an uptrend. Yes, an uptrend. It may be ending but until signals confirm a move lower, it is an uptrend.
With that in mind, consider the signal that the Volatility Index, the VIX, gave last week. It popped right? That means volatility is going higher and stock prices are going to fall.
Not so, based on recent history. The chart below shows the VIX in the top panel with the S&P 500, the SPX, in the bottom panel. In this long downtrend in the VIX it has had other spikes higher.
In fact, the last 3 times it has moved above its 200 day Simple Moving Average (SMA) and then retreated, this has marked a bottom in the S&P 500. The move higher from that bottom has averaged 8.25%. And what happened last week? The VIX crossed the 200 day SMA and then retreated again.
If this time marks another bottom then a similar move higher would take the S&P 500 to 1662.50. Interestingly, my friend Todd Salamone at Schaeffer’s noticed something similar in a VIX signal last week, but from the other direction. Read his analysis here. Maybe the upward movement is not done yet.
Disclosure: The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.
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