Here’s another chart to follow for the next several days. This one is $VIX and $SPX. $VIX itself is invisible but I’m tracing it with a 5EMA, like the chart I put up last night.
The red vertical lines on the chart mark the times when the 5EMA tagged 16 and then turned. You can see that in both cases, which isn’t many given that this is a 3-year chart, the market moved a bit higher before rolling over. The orange-ish vertical lines mark the only two times when the 5EMA tagged 16 but then continued south eventually hitting 15 before turning. Market reaction was immediate in one case while in the other case the market rolled over a few days later and from a few points higher. The red arrow is pointing to the current 5EMA position, which is now just below 16.
The bottom line is that these two charts are showing that we are there and now we just sit and wait to see how long it takes for the markets to recognize this and react. I said last night that a turning might come in 3-10 days, minus one day now. So, based on the information these two charts are presenting, I would think that we should all have a pretty clear picture by, say, Wednesday of next week.
Chart courtesy of StockCharts.com
I’m in cash so I’m biased and would love to see a big phat pull back which these charts seem to indicate is on the horizon. But it’s not a perfect world and past market events don’t always have predictive value. Until we see how this all shakes out, I’d be very cautious adding to existing long positions or initiating any new long positions.
BTW, I have other charts similar to the one above over at Charts-A-Pallooza, link on the right side of this post. They’re in the Breadth Indicators section.