Stock Market Trend In Jeopardy

What a week it has been! Various markets saw noticeable declines on news of rising yields. The strong upward trend for stocks is finally taking a long-overdue breather and so is extreme sentiment.

Let’s look at some bullish and bearish factors to give us a better idea of what the markets are doing.

VIX spike

VIX spiked more than 35% on a day when the S&P 500 fell less than 2.5%. This is a nervous market…

This is also an unusual occurrence with only 7 other similar cases since 1990.

Historically, this was a bullish sign for stocks over the next 9-12 months.

And this was a bearish sign for VIX on every single time frame.

Low Relative Gamma Exposure

Relative Gamma Exposure recently fell to a record low. This indicator divides Gamma Exposure by the S&P 500’s value to account for the stock market’s changing value over time.

In the past, when the relative gamma exposure fell below -650000, this was a very bullish sign for stocks on almost every single time frame.

S&P 500 breadth

S&P 500’s incredible 69 day streak with more than 85% of stocks above their 200dma came to an end with the recent market decline.

Historically, such strong momentum could lead to a larger short term selloff, followed by more gains over the next 1-3 months.

Stocks & Bonds

Stocks and bonds both fell this week, with bonds not acting as much of a safe haven for investors. A 50-50 allocation of stocks and bonds saw one of its worst performing days with a greater than 3% 1-day decline.

When this happened in the past, this was a bullish sign for stocks over the next 3 months.

This was also a bullish sign for bonds over the next 6-12 months.

Fund flows

On Thursday, when the S&P 500 index saw a market decline of more than 2%, the S&P 500 ETFs SPY, VOO and IVV still saw inflows of greater than $1 billion.

This was a very bullish sign for stocks on almost every single time frame.

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