That is a bit of an ugly candle today. There are a lot of short term tops that look like that. However, as usual in the market that is not always the case. SPX closed above the resistance zone that usually leads to a test of the high, but we kind of had that test today. SPY actually gapped up over the Aug. high. However, SPX never got up that far. Lets take another look at the VIX tonight.
In Daily update 9/9 I wrote "In other words there is a significant VIX divergence with SPX now. This usually results in a big move for SPX. However, it does not always go in the direction of the VIX. If SPX keeps going up the VIX should start to melt down as option players reverse. If SPX turns around then it is likely to take a tumble as the option players turn out to be correct and people long stocks bail."
The market moved up, but the VIX did not have the big move down it normally does in that situation. There is still an obvious and big VIX divergence between now and the Aug. lows. Even with today's big gap up in stocks the VIX actually ended the day positive. It also appears that it might be making a bottom right here in the vicinity of the 50 SMA. There still is the possibility this divergence ends with a big move down in SPX. This is a caution flag for bulls at the moment.
People did not hesitate to sell into the gap up this morning. This does not surprise me as we still have the more important FED meeting to deal with on Wed. I have heard people say that some tapering of QE is priced into the market. With the market at the highs I am not sure exactly how that could be. If that were the case I would have expected a move down in the market into the announcement and rally afterwards. With a move up into the announcement there is the possibility of a sell the news reaction. That may be what the VIX is telling us. I suspect the market will mess around until we get the meeting announcement. Then we will see what the reaction is.
Bob
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