One Of The Largest Single Day Advances in Volatility History

Yesterday was full of news out of Greece and whether the country could pay its debts while its citizens lined up to take a small maximum amount out of their checking accounts. As far as the equity market was concerned, the world was crashing! At least that’s what you would have thought by seeing how far the Volatility Index ($VIX) had risen.

On Twitter last week I mentioned that the way price and certain pieces of price-related data/indicators were acting, it seemed like we were setting up for a rise . Since then the $VIX has spiked over 55%.

In fact, this was the 11th largest rise in Volatility in 20 years! Only twice during the 2008 Financial Crisis did we see the $VIX advance by a greater amount in a single day. We finished up trading on Monday with the ‘fear index’ up nearly 40%. I’ve been discussing the decline breadth and momentum on both the blog and on Twitter, the number of stocks rising just hasn’t been able to keep up with the overall index. When this type of thing happens, a spark of international drama can be the needle that breaks the equity camel’s back, at least in the short-term, sending fear soaring like we did today.

So when were the most recent times this measure of trader concern rose at such a fast pace? 2011 and 2013. From those large pops in the the $VIX we saw Volatility mean-revert, falling 70% and 30%, respectively over the next days/weeks. I’m not calling for an immediate decline in Volatility, but historically it does tend to lose steam after such a strong rally, we’ll see if this time is any different.

VIX

 Full Disclosure: Certain client accounts may have positions in Volatility-related ETPs upon the time of this writing

Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer. Connect with Andrew on Google+, Twitter, and StockTwits.

The U.S. Equity Chart I’m Watching Right Now

Starting in late February I began to see some warning signs for the short-term movement in U.S. equities. On Feb. 23rd I wrote in my Technical Market Outlook, “While I think the current trend looks health the short-term price action appears to be stretched at the moment. Volatility ($VIX) momentum has been pushed down quite a bit. I wouldn’t be surprised if we see some bumps in the near future that could push the $VIX higher. We’ll see.” I also began tweeting some of the intraday/bearish charts I was seeing (here, here, and here). While the long-term price action in the S&P 500 still appears healthy (you can read more on this in the above mentioned Technical Market Outlook link) I still like to pay attention to the short-term price action as well.

Since then, volatility has risen about 20% and the S&P 500 has dropped a couple of percent, nothing major. But with this small period of weakness I want to show the U.S. equity chart I’m keeping an eye on that moves beyond just the intraday swings of the market.

Price
Below is a weekly chart of the S&P 500 ($SPX) going back to early 2012. Along with the $SPX I’ve included the 20-week (same as the often discussed 100-day) and the 50-week Moving Average. These Moving Averages have acted as support during prior dips in equities for the current up trend. As of the time of this writing, we are testing the 20-week right now. As price continues to make higher highs and higher lows, from a price action perspective things look fine and the trend is clearly up.

Momentum
Moving to momentum, I’ve included the Relative Strength Index (RSI) and the MACD indicators. Since 2012, the RSI has been in a bullish range as it moves from 40 to over 70. This is a good sign that buyers continue to move in and has helped define the ‘buyable dip’ theme that’s been taking place over the last several years. However, most recently, a bearish divergence has developed in both the RSI and the MACD momentum indicators. As price has trekked higher, momentum has begun making lower highs, which has typically preceded turning points.

If we do continue to see price move lower, taking the RSI and MACD with it, I’ll be watching to see if prior support in the Relative Strength Index is able to hold up and provide some relief for equity bulls. I will also be keeping a close eye on these longer-term Moving Averages (20- and 50-week) and see how price responds if (in the case of the 50-week) they do get tested.

In the meantime, I’ll respect the current up trend and the notion that breadth (not shown) has continued to confirm the the new highs in price which in my opinion should not be disregarded. But these are the levels I’m watching, we’ll see where price takes us.

S&P 500

Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer. Connect with Andrew on Google+, Twitter, and StockTwits.

Weekly Technical Market Outlook 2/2/2015

I was gone last week at the TD Ameritrade National Conference in San Diego but looks like it turned out to be an interesting week for the financial markets. While Volatility ($VIX) has expanded, I’m not seeing the same signs I normally do at past buy-able dips. For instance the number of stocks at new 52-week lows on the NYSE at the last S&P 500 October low was 617 and at the December low it hit 434, but this most recent dip has only seen 150 NYSE stocks hit annual lows.

January closed down by a little over 3%, making it the second consecutive monthly close lower since May 2012. Meanwhile, the 10-year Treasury Yield appears to be quickly approaching the 2012 low as January’s move nearly finishes erasing the rise in yield during 2013.

Trend
The trend of the S&P 500 ($SPX) is currently in a short-term period of consolidation while still maintaining its long-term up trend. Equities have retreated back to October ’14 levels while putting in a series of short-term lows near 2000 and a double top at 2060.

trend

Breadth
A few weeks ago we had, what turned into, a false break in the Common Stock Only NYSE Advance-Decline Line. Since then, stocks have been trying to find support near 2000 in the S&P 500 while the A-D Line has been able to create a slight series of higher lows over the last month. While the Percentage of Stocks Above Their 200-Day Moving Average is in a defined down turn, it too has put in a set of higher lows in January. Is this hinting at the direction equities will head in the coming weeks? We’ll see.

breadth

A Negative January
While many traders will likely look to January as an indicator for how the full year will turn out, I’ve already discussed the method that I prefer two weeks ago. Nautilus Research tweeted out the following chart which I found interesting. It shows previous periods where January has been negative following three positive years. As the table below the chart shows, of the seven prior occurrences only one follow year was able to squeak out a gain, which was still less than 1% at that.

Down January

Momentum
Coming into 2015 we had a bearish divergence in momentum which was followed by a false breakout in the S&P with stocks struggling ever since. However, like Breadth the Relative Strength Index has created a slight positive bias while the S&P continues to test 2000.

momentum

Financial Stress
Cris Sheridan at Financial Sense recently wrote an article showing the current bear case for equities. One of the charts Cris shows a compilation of the Federal Reserve Financial Stress Indices. You’ll see in the chart below that the indices have begun to rise after falling for the last several years. Three of the four Stress Indices are still below zero, while all four broke above the zero-line at the prior major market high in 2007. I’ll be keeping an eye on these sets of data and will be watching if they all continue to advance in the coming months.

financial stress

China
Like the U.S. equities did at the start of the year, Chinese stocks have created a potential false breakout on the weekly chart of the iShares China ETF ($FXI). This occurs after the Relative Strength Index (RSI) failed to confirm the breakout and put in a lower high, creating a bearish divergence. Volume also did not confirm the breakout with fewer shares being trading on positive days over down days as measured by the On Balance Volume indicator. Prior dips in $FXI have found support at the 50-week Moving Average. Will $FXI also end up declining back to its 50-week MA?

ChinaLast Week’s Sector Performance
Last week we saw the Materials ($XLB) sector as the best relative performer followed by Consumer Discretionary ($XLY) and Energy ($XLE). Technology ($XLK) and Consumer Staples ($XLP) were the worst relative performers for the week.

last week sector

Year-to-Date Sector Performance
While the S&P 500 finished in the red for January, Utilities ($XLU) and Health Care ($XLV) were able to pull out a gain for the month. While they had a rough last week of the month, Consumer Staples were still able to outpace the major index. Financials ($XLF) and Energy are the worst performers YTD.

YTD sector
Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer. Connect with Andrew on Google+, Twitter, and StockTwits.