Still A Bull With Volatility

Weekly charts are a valuable tool to understanding a more distant look into market comparisons. Then we can decide whether we are still in an up trending market or we have turned downward, based on the technical pattern.  Below is a weekly chart of the S&P 500 Index.

Source:  Shaw Investments, StockCharts.com

From the weekly chart above.  The current correction low that we achieved yesterday, is above the correction low that was achieved in 2014, still creating an upward trend line, based on the weekly chart.  

Source:  Shaw Investments, StockCharts.com

The $VIX chart above has not seen high levels like this since 2011.  Expect volatility in the near term, until the $VIX reading declines to more normal historical levels, which could take a few weeks.  

Bottom Line:  The S&P 500 Index above put in a correction reading (greater than -10% from peak), but remains above the 2014 correction low, creating an upward trending market.  So we are in a long term bull market, and an intermediate term up trending market.  The $VIX remains very high historically, so expect a whip lashing type market in the near term or until the $VIX declines to more historical average levels.  Thank you for reading.

Week In Review

Remaining objective during stock market corrections is the best possible solution.  We can remain objective by viewing charts, and by blocking out any emotional related news that seems to circulate, when there is a sell-off at hand.  Remember, market corrections are a healthy process that cleanses out all the excesses, to the point that value creation emerges.  In other words, these are good times to be putting cash to work, which we have this week.  So let's view a couple charts below to understand better, how far down this correction could go.  

Source:  Shaw Investments, StockCharts.com

The above chart is of the S&P 500 index, which is one of the world's most watched index.  I tracked last year's market correction loss just to compare what we may be looking for at this precise moment. Last October's correction took the market down -9.89%.  We are currently lower from the recent high at -7.29%.  So we are closing in on last years percentage correction low.  In addition the market at this time is very oversold, and we should get a relief bounce higher at minimum, in the near future. 

Source:  Shaw Investments, StockCharts.com

The above chart depicts what is known as the VIX.  The VIX is also known as a fear gauge, based on how much volume is exhibited in the options market with put buying.  The higher the VIX spikes the more fear is said to be in the market.  The important thing here is to observe the extremes of the VIX. Based on that theory, the huge spike in the VIX could signal a sell-off stock market bottom may be getting close at hand.  The move higher is getting very close to matching last years VIX correction high reading.  

Bottom Line:  Great time to be adding to existing positions over the course of this correction.  The sell-off so far, is getting close to last years correction low, so we may be getting close to a bottom, if using last years sell-off on a comparison basis.  Thank you for reading.  

Market Capitulation?

Many characteristics of a market bottom were displayed today.  Highest volume day of the year, VIX fear index breaking higher, and bonds all moving higher at the same time. First lets take a look at the S&P 500 ETF (SPY).  This index traded the highest volume of the year.  Notice the high volume today.

The VIX index, also known as the fear index, rises when puts are purchased to protect portfolios.  As seen below this index rose 35% today.  Not quite as high as last years market correction, but still high.  I look at this index as a contrarian indicator.

Bonds moved higher yet again as investors move into a safe haven regardless of the low yielding return.  Below is a chart of the bond ETF (TLT) breaking higher for the year.

Bottom Line:  Just because these are the signals I look for in potential market bottoms, does not necessarily mean we are there yet.  But as always, there will be some stocks beaten down for little reason other than the overall market moving lower.  Thanks for stopping by.