Volatility stays elevated amid rising uncertainty

It has been about twenty days since SPX marked a high near $4,607. Back then, we highlighted the importance of watching the Chinese stock market in order to get more clues about what could be waiting for the U.S. indices (specifically, we mentioned a rollover in the Chinese stocks and the spillover effect). Since then, SPX drifted slightly lower, approximately 3.7%. Meanwhile, Chinese indices dropped significantly more. In particular, Hang Seng Index erased more than 10%, and Shanghai Composite Index lost about 5%. While all these figures are not yet all doom and gloom, the weakness in the global markets should not be overlooked easily, especially as we are still seeing the situation in China unravel. Therefore, we are paying close attention to technical indicators like MACD, Stochastic, and RSI on a daily time frame. All three indicators are in a bearish constellation, with MACD approaching the midpoint. If it breaks below zero, it will greatly bolster the bearish case for SPX in the short term. In such a scenario, we would expect SPX to continue falling to the area between $4,250 and $4,350.

Illustration 1.01

Illustration 1.01 shows the daily chart of VIX. Interestingly, the volatility index is staying elevated.

Technical analysis gauge
Daily time frame = Bearish
Weekly time frame = 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:

Hang Seng Index continuous futures keep getting hammered down.