It seems pretty clear that as long as the S&P 500 continues moving on a daily basis between 1 and 1.5%, the VIX is going to find it hard to break meaningfully lower. It seems as if yesterday’s rally was inspired by volatility selling, nearly an identical but inverse version of Monday’s trading session.
But what is notably different is the highs in the S&P 500 continue to be lower, and the lows are getting lower for the S&P 500. Meanwhile, the VIX is pretty steady in this 21 to 24 region. The significant risk here is a spike in the VIX above 24, which would be a de-risking event for the equity market.
It looks like the S&P 500 filled Monday’s gap lower and hit resistance at 4,365. Now it seems like we have a gap to fill today at 4,305. Tuesday’s pattern seemed incredibly similar to the one on Sept. 23 (see the “2”), with the same gap higher and widening wedge/diamond pattern. It suggested a big drop back to 4,300.
I was convinced Tuesday morning there was a bear flag in the NASDAQ 100 futures, which turned out, for now at least, to be wrong. It still looked like the bear flag was there, but with a throw-over for now, sucking buyers into the market. We will see if it falls today back through the lower end of the flag. If so, we should see prices below 14,600.
Square (NYSE:SQ) rebounded sharply Tuesday, rising by more than 4%, but all it seemed to accomplish was filling the gap from Monday and then returned to its previous trend which was lower.
Amazon.com (NASDAQ:AMZN) also rebounded yesterday, but it was a fairly weak bounce, regaining only part of Monday’s losses finishing well off its highs. It appeared there was a pretty well-defined downtrend in the chart with the $3,200 support level still the major inflection point.
Apple (NASDAQ:AAPL) was no different from both Square and Amazon, with a clear trend lower still in place and the appearance of only a gap fill being completed. The trend toward $130 still seems to be well intact.