Volatility is soaring and traders are suffering. It's too difficult to play with massive whipsaw moves intraday just about everywhere, while the trend remains clearly lower for now. When the VIX is in the low teens it's easy on the soul, but when it rockets into the lower 20-range, things can get very intense. You can barely keep up with the score. You blink and the S&P 500 moves 5 points. You blink again and it's another 5, and so on. The range for the day across the board on all the key index charts can give you motion sickness. Huge drifting. This is when markets become too difficult to put the finger on the buy or sell button. It becomes luck trades, and that's not what you want to be doing. It can work, but Russian roulette is better used somewhere else.
Soaring volatility all began when the markets recently topped out, with the 50-day exponential moving averages disappearing on the key index daily charts. The S&P 500 is now clearly below that, with those 50’s (at about the 2019 level) now resistance on rally attempts. Bears get more aggressive when those 50-day MA's disappear, which we saw big time Monday when the futures were up pre-market. The S&P 500 tested to those 50’s and died right there. A few attempts to get back through were wiped out quickly enough, the bears showing they won't be scared away as easily as in the recent past.
So Monday was another down-day, but things are getting very oversold now on the short-term charts, so we should expect some type of rally shortly. The VIX should signal that moment.
The market can be very nasty sometimes. It can show you one thing one day that says things are very bullish only to twist it around shortly thereafter, and take down the masses. That's seen best in the behavior of the financial stocks. A very long-term base finally broke out with Goldman Sachs Group, Inc. (GS) leading the way. The breakouts across the board held for many days, which often signals the coast is clear and that the other side of the trade is done. The bears pulled the rug out on everyone, and we are now seeing all those stocks lose the base breakouts. Very nasty action there.
Many other sectors are showing topping action. The Market Vectors Biotech ETF (BBH), or the biotechnology sector, doesn't have the very best-looking oscillators on its daily chart, with the MACD crossing down from high levels with a gap down to act as resistance. If more and more join in, the selling can get much worse, so let's take it easy from here for a while, until the VIX signals the all clear for a little while. The market is showing its dark side these days. Respect it.
All of this is great for sentiment. There is always an upside to things when the market falls. The bull-bear spread is hopefully at, or below, 30%. It has been at, or very above, 30% for 10 straight months. That's terrible. The market is paying a small price right now. Another bad week here and we could see mid-20 readings. Hopefully, even lower, but it's good to have the spread out of the 40's. We stay out of the way here knowing 2019 is going to be very difficult resistance on any counter-trend rally attempts. The lower the better for the short-term, but we are very oversold, so we can rally at any time.
Be smart and keep things very light all around. 1941 next support on the S&P 500, if we can't get back through 2019.
Jack Steiman
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