Volatility Is About To Pick Up Again
After a few really strong weeks in the markets, it is clear that a retracement is required. We can easily see this on the chart of leading indexes. But here at InvestingHaven, we have developed a crucial component in our methodology which is all about reading volatility indexes as leading indicators to understand future price direction.
In our Trade Alerts weekend edition, we feature 6 distinct volatility indexes. They help us understand what to expect from markets, especially the S&P 500. In this short article, we feature 3 volatility indexes (out of the 6) to illustrate our methodology.
The short-term volatility index on the S&P 500 is near support. The most likely outcome is a bounce from here (retracement in markets). We can only expect a bullish run in markets once this short-term volatility index breaks down. For now, we expect volatility to pick up (markets to retrace) until it hits the red/yellow shaded area.
The Nasdaq volatility index, which was the driver of the recent sell-off (in fact, the driver of selling since mid-November), came down exactly to the point we indicated a while ago: the green arrow.
There is only one real trend change in the Nasdaq (confirmed bullish trend) to look for once its volatility index falls below this rising trendline, as indicated on the chart below. Whenever this happens, we know for sure that markets are to resume their uptrend.
The longest-term volatility index on the S&P 500 is currently in the middle of nowhere. However, there is a potentially mid- to long-term uptrend in the works, as seen on the higher highs set since last September. We read this index as potentially dangerous.
Conclusions (this is an excerpt from our Trade Alerts weekend alert):
- The Nasdaq has not confirmed a trend change as of yet. It will not appear bullish until its volatility index structure breaks down. This has important implications for stocks in general because the Nasdaq has been the driver of volatility and selling since last November.
- General volatility has come down and is hitting rock solid support.
- The next four trading days will be telling (for reasons shown on two other volatility indexes not included in this article).
We expect either an after shock or a quiet market. Maybe, we’ll get an after shock followed by a quiet market. By next Friday, we should have good insights about the intent of this new cycle.
This is an excerpt from our Trade Alerts weekend edition. We posted 3 from the 6 volatility charts, as well as ...
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