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Wednesday, November 2, 2016

Daily update 11/2 VIX moving to a higher regime?

Test of yesterday's low.

SPX closed below the possible round number support of 2100, but not by much.  It tested below yesterday's low briefly and bounced back quickly.  However, the bounce found some sellers going into the close.  Since SPX closed above yesterday's low it did not confirm the break down below 2120 yesterday.  There is probably still a small chance the market pulls itself together, but the odds seem pretty low to me.  I don't see a good oversold condition yet that would really bring in the buyers.  Breadth was -74%.  New highs dropped way down to 16.  New lows increased a bit again to 96.  SPX is now down 7 days in a row so a relief bounce could happen any time.

The futures have confirmed a break of their Sept. low.  I am not sure if that means much though.  That low might be resistance now, but I don't really know.  What I do know is that everybody that bought the July break out to new highs and is still holding on is underwater.  We now have several months of overhead supply above.

The red count increased a bit again today, but remains below oversold levels.

The bull pressure chart shows the selling pressure in all three time frames is the highest it has been since the Jan. sell off.  The bears are firmly in control at the moment.

I am pretty sure I wrote some MA cross on the VIX indicating the period of extra low volatility might be coming to an end, but I can't seem to find it.  Here is a look at the weekly chart.

I have written about the approximately 3 year periods where the VIX was predominately below 20 we saw in each of the last three decades.  The first two periods were followed by several years where the VIX stayed predominately above 20.  I have been expecting that to happen again.  Those first two low volatility periods ended when the weekly 100 SMA (white line) crossed above the 200 SMA (green line).  That cross happened earlier this year, but we have not been spending much time above 20 yet.  However, since the Oct. 2014 low the VIX itself seems to be getting more volatile.  I don't have any idea why the 2-5 years of the decades since the 90s would have low volatility and the rest were higher.  Why would the pattern change now?  I can see lots of reason in the world today to have increased volatility.

The bears are in control.  SPX is a little extended from the 20 DMA and has been down 7 days in a row.  A bounce day could happen at any time.  However, I don't see anything here that suggests the market is ready to make an important low yet.  There is no law it has to bounce either.  Since the FBI news broke on Friday there is little to no bid in this market.  Jeff Gundlach talked about the importance of SPX falling back below 2130, but I have not read or heard anything else yet.  I am surprised the bears are not coming out of the woodwork on the failed break out of SPX.  The research I saw said that was about a 1 in 10 chance based on the length of time SPX had not made a new high.  The market was supposed to go up.  Just before the latest move down they were talking on TV about the market melting up.  The market is not doing what nearly everybody expected.  That means it is time to pay very close attention.  We could be in a bear market.


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