Since the SPDR S&P 500's (ARCA:SPY) September 19 high, the markets have been declining steadily. That move lower was not much of a surprise to those in the know as many signs pointed to such a decline. Take, for example, Alibaba Group's (NYSE:BABA) over-hyped IPO. Historically, similar IPOs have often marked significant market tops. There were also many technical reasons, of which we took full advantage -- our Yahoo! (NASDAQ:YHOO) position, for example, was closed with more than 10% gains while our stake in (NASDAQ:QQQ) closed out and up by more than 10%. Such quick-and-easy gains are indicative of the type of market we are in right now.
Increased Volume
The SPY, for example, has been on a multi-year bull run and every dip has been seen as an opportunity to get back into the markets. However this time around it may be different. Volume on the SPY has been increasing as selling intensifies -- an indication that institutions can no longer wait to slowly feed the small retail investors more shares of stock as they have done over the last few months. Amidst such high levels of complacency, there are few bears in the markets coupled with a lack of short sellers to cushion the markets as they fall by covering short positions. Indeed, the SPY, while into minor support at the moment, is on the verge of a major collapse as it flirts with the possibility of another flash crash.
The VIX, for its part, is on the verge of triggering a major trend-line break out -- what many like to call an Inverse head-and-shoulders pattern. If that pattern triggers, the VIX could move in a hurry, north of 24, triggering multiple patterns in bigger time frames. Which means that the SPDR S&P 500 ETF Trust could fall much lower and much faster than many expect during October.