Sunday, August 7, 2016

Short and Sweet

Today's post will be fairly short.  The last two weeks I have been looking for a short-term top around SPX 2185 and Friday's close was 2183.  Last week's post noted a rise in the VIX P/C to 1.5 as a very short term warning and resulted in a 30 point decline.  This past Friday's reading of .52 is benign but unusually odd since calls were twice the normal level (smart money) and puts were three times the normal level (dumb money), so a short term rise in volatility is likely.  Other warnings short term are the potential VIX bollinger band "SELL signal" with a reversal from a close below the band, SKEW rising to 130,  as well as the lingering bearish sentiment. The Olympics have started so Vika is another concern. (Corrected BB signal)

Getting straight to the indicators from early 2015.  The overall Indicator Scoreboard has continued to show very low levels of bearish sentiment and the period since April is starting to look more and more like the early 2015 period.  Money managers and banks supporting the Democratic policies may keep the market afloat into the Presidential election.

The Short Term Indicator (VXX $ volume and Smart Beta PC) continues to show very low bearish sentiment similar to the May and November 2015 topping patterns.

Conclusion.  Everything seems to be in place for a 2 to 3% pullback to the SPX 2130s.  The continued high reading of the VIX P/C makes a larger decline unlikely at this time.

Weekly Trade Alert.  Short the SPX at 2185 or better, stop 2200, target 2135.  A rise in the VIX may be the first sign of a turn.

As a bonus chart this week, I'm throwing in the VXX/XIV ETF ratio chart going back to 2013.  The second half of the chart is starting to look like a mirror image (upside down) of the first half.  Draw your own conclusions.

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