VIX Flashes Bullish Stochastic Crossover Warning SignalOpinion
The major equity indexes closed mixed yesterday with mixed internals on the NYSE and negative internals on the NASDAQ. Volumes swelled on both exchanges from the prior session. While no support levels were violated on the charts, a couple of bearish stochastic signals were generated while the VIX gave a bullish crossover signal suggesting more volatility may be entering the markets over the near term. The data is mostly neutral but now has raised a few flags of caution. As the charts have yet to generate sell signals, we remain near term “neutral” in our outlook but with a bit more concern. High valuation of the SPX keeps the intermediate view “neural” as well.
- On the charts, the indexes closed mixed with negative internals on the NASDAQ while the NYSE was mixed. The DJI (page 2) and DJT (page 4) were the only indexes managing to close higher on the day. Were it not for the surge in the energy sector, they would likely have declined as well. The COMPQX (page 3) and VALUA (page 5) both gave “bearish stochastic crossover” signals implying weakness while the VIX (page 9) did the opposite by registering a “bullish stochastic crossover” signal implying the markets may see an increase in volatility over the near term, likely accompanied by lower index prices. However, the sell signals in the form of breaks of support have yet to be seen. We suspect evidence may be mounting, increasing that possibility.
- The data is largely neutral including all of the McClellan OB/OS Oscillators (All Exchange:+27.01/36.02 NYSE:+19.03/+25.91 NASDAQ:+14.36/+45.56). The OEX Put/Call Ratio (smart money) is also neutral at 1.22. But warning signals are coming from the Equity Put/Call Ratio (contrary indicator) as the crowd is long calls at 0.54 and a negative shift in the Gambill Insider Buy/Sell Ratio. The Gambill levels have now officially turned bearish at 8.5 as insiders have now become active sellers post the rally, in contrast to their buying activity at the November lows.
- In conclusion, we remain near term “neutral” in our short term outlook for the indexes due largely to the lack of sell signals on the charts. Yet there is enough evidence appearing to warrant some elevation in caution.