U.S. Stock Market Rolls Lower

Stock market price action is usually conducted in a series of up and down price phases – or waves/cycles. Typically, price will move higher or lower in phases- attempting to trend upward or downward over time. This type of price action is normal. Extended upward trends with very little downward price retracements happen sometimes – but not often. They usually happen in “excess phase” rallies or after some type of news event changes expectations for a symbol/sector.

Putting Concerns Into Perspective – Still Bullish

Since early November 2020, the US stock market has continued to rally in a mode that is similar to an excess phase rally – showing very little signs of moderate price rotation. While price volatility has continued to stay higher than normal, you can see from the SPY Daily chart below that it has rallied from $324.40 to $385.95 (over 18%) in just under 90 days. At some point in the future, a moderate price rotation/retracement will happen that may be in excess of 6% to 11% – as has happened in the past.

Stock Market

The purpose of this research post is to alert readers that the markets appear to have started a period of downside price rotation – which is normal. This SPY Daily chart, above, highlights the upward support channel originating from the March 21, 2020, COVID-19 lows (CYAN line) and also the upward support channel originating from the early November 2020 lows (YELLOW line). Continue reading "U.S. Stock Market Rolls Lower"

Why You Should Prepare For A Jump In Volatility

By Elliott Wave International

Stock market volatility is like a roller-coaster ride -- extreme ups and downs.

However, unlike thrill-seeking roller-coaster riders who often rise from their seats after the ride with a smile, investors often exit with a frown.

That's because extreme volatility after a stock rally often ends with prices much lower.

Having said that, many investors -- even professionals -- do not anticipate a jump in volatility right now.

Indeed, the San Diego Union-Tribune asked the senior principal of a financial advisory firm on Jan. 15:

Will 2021 be a volatile year for the stock market?

He replied:

Continue reading "Why You Should Prepare For A Jump In Volatility"

Money Will Be Made Trading The VIX In 2020

Market uncertainty creates volatility and the VIX is an index that measures this volatility based on the S&P 500. When news hits the stock market, the VIX increases and when there are fewer outside factors or less uncertainty about the future, we see the VIX fall.

Thus far, in 2020, we have had two situations that have increased volatility in the stock market; the political and military situations between the United States and Iran and the Coronavirus. We are only one month into the year and two major events have occurred which have sent the VIX soaring higher. There will undoubtedly be more pop-up events such as say further political and military issues with Iran or even North Korea perhaps. We will likely see natural disasters pop-up which could cause uncertainty, the situation in England with Brexit and how that is handled could potentially cause uncertainty. Coronavirus is likely to continue to create uncertainty. These are just a few predictions off the top of my head that could cause the VIX to move in the coming months.

One event coming in 2020 that we can all see on a calendar is the Presidential election this year. We know uncertainty about the future causes the VIX to rise and based on the past election of President Donald Trump, we can confidently say that political polling is not very accurate. Thus, we can predict there will be a high level of uncertainty coming down the road with who may be our next President.

With all of this in mind, how do we use this uncertainty to make money? Well, the easiest way is by Continue reading "Money Will Be Made Trading The VIX In 2020"

VIX Warns Of Imminent Market Correction

The VIX is warning that a market peak may be setting up in the global markets and that investors should be cautious of the extremely low price in the VIX. These extremely low prices in the VIX are typically followed by some type of increased volatility in the markets.

The US Federal Reserve continues to push an easy money policy and has recently begun acquiring more dept allowing a deeper move towards a Quantitative Easing stance. This move, along with investor confidence in the US markets, has prompted early warning signs that the market has reached near extreme levels/peaks.

VIX Value Drops Before Monthly Experation

When the VIX falls to levels below 12~13, this typically very low level is usually associated with an extreme peak in price. Throughout history, after the VIX has collapsed to these types of low price levels, the markets have a tendency to revert/correct in ranges that are typically in excess of 3.5% to 5.5%. In some cases, these corrections have been as large as 11% to 18% or more.

VIX
Continue reading "VIX Warns Of Imminent Market Correction"

Pendulum Swing No.5: Back To Success!

It’s time to announce the result of the 5th Pendulum swing pushed this January. In that race, I put heating oil (ultimate futures winner in the second half of 2017) vs. wheat futures (the top loser). The Pendulum effect favored the top loser, i.e., wheat to beat heating oil in the six month period. The image below contains the poll results of your voting for that experiment.

Image 1. Poll results

CBOE Volatility Index (VIX)
Chart courtesy of INO.com

Bingo! The majority of you guessed right choosing wheat as a winner and as you can see in the next chart that wheat has gained +17.56% as heating oil gained only +6.76. I would like to express my gratitude to those who chose the experiment success option for your trust! So after the first failure in the second half of 2017 (4th swing), the Pendulum experiment is back on a winning track! Let’s try it again and see what happens.

Chart 1. Half Year Futures Performance (First Half of 2018)

CBOE Volatility Index (VIX)
Chart courtesy of finviz.com

This time we will have an interesting race as the winner in the first half of 2018 is not a commodity, but the CBOE Volatility Index (VIX) also known as the stock market fear gauge. It gained more than 40%, leaving its rivals far behind amid the roller-coaster ride in the S&P 500.

On the other side, which is red, there is the biggest loser, sugar with an almost 20% loss in the first half of 2018. The supply glut in the sugar market undermined the price for this commodity significantly. Continue reading "Pendulum Swing No.5: Back To Success!"