US Stock Market Rolls Lower After 18% Rally Since November 2020

TRAN TESTING SUPPORT NEAR 12,180

The following Transportation Index daily chart shows a very clear picture of how this “rollover” in the markets has setup and where real support is likely to be found.The early January lows, near 12,180 are the most likely immediate support level on the TRAN Daily chart, below. If the US stock market attempts to find immediate support to sustain the current bullish rally trend, then this level in the TRAN will likely hold up well over the next few days/weeks. Otherwise, if the TRAN breaks below this level, then the next viable downside target become the November 2020 lows (or somewhere close to those levels).

Using Fibonacci Retracement Theory from the early November 2020 lows to recent highs, we achieve the following levels:

  • 25% retracement: 12,628.92
  • 38.2% retracement: 12,331.44
  • 50% retracement: 12,065.47
  • 61.8% retracement: 11,799.51

The 12,180 level we are suggesting will turn into critical support is just above the 50% Fibonacci Retracement level. Therefore, any further downside trending would be predicated by a breach of both the 12,180 level and the 12,065.47 level.If price holds above either of these support levels confidently, we would consider further downside risks unlikely.

VIX SPIKE HIGHER BEGINS

The upward spike in the VIX recently is indicative of how volatile the markets have become after nearly 90 days of continued upward trending. Whenever the US stock market enters a decidedly bullish price trend for an extended period of time, the VIX naturally “normalizes” into a lower boundary and becomes hypersensitive to moderate price rotations. We’ve seen this happen many times in the past.

Because of the way the VIX is calculated, when these breakout moves happen while the market is conducting a relatively normal price rotation/correction, the VIX can sometimes spike above 35 or 45. To put this into perspective, the 2008-09 market crash prompted a VIX move to near 95. The COVID-19 market crash prompted a VIX move to near 85. Many other moderate market downtrends over the past 10+ years prompted VIX moves above 30~40. Three of the biggest “normal range” VIX moves happened in August 2011 (VIX level near 48), August 2015 (VIX level near 53.50), and February 2018 (VIX level near 50).

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