VIX extremely low, downside protection cheap, a time to reverse?

The S&P 500 Index rose more than 11% in the past four weeks. While these gains are impressive, their compression into a short time window makes us somewhat uneasy. That is especially true when looking at other market developments, like stagnation in the Chinese stock market and the Volatility S&P 500 Index reaching extremely low levels last Friday (unseen since January 2020). Regarding technicals, there are also some worrisome developments, like the declining volume accompanying the rising price on the daily graph. As a result, we will monitor RSI, MACD, and Stochastic and watch out for any signs of flattening or reversal in the coming days (implying potential trend reversal). We will update our thoughts on the asset with the emergence of new developments.

Illustration 1.01

Illustration 1.01 shows the daily chart of SPX. The green and red arrows highlight the questionable relationship between the price and volume.

Illustration 1.02

Illustration 1.02 displays the weekly chart of VIX.

Technical analysis gauge
Daily time frame = Bullish
Weekly time frame = Slightly bullish
*The gauge does not necessarily indicate where the market will head. Instead, it reflects the constellation of RSI, MACD, Stochastic, DM+-, ADX, and moving averages.

Please feel free to express your ideas and thoughts in the comment section.

DISCLAIMER: This analysis is not intended to encourage any buying or selling of any particular securities. Furthermore, it should not be a basis for taking any trade action by an individual investor. Therefore, your own due diligence is highly advised before entering a trade.

Comment:

Chinese indices show signs of further stagnation, which is something to watch out for due to the high positive correlation between the U.S. and Chinese stock markets (remember, during the summer, Chinese indices were first to reverse to the downside, only to be followed by U.S. indices).

Illustration 1.03

The picture above shows the daily charts of Shanghai Composite Index and Hang Seng Index.