S&P500 vs VIX – Bearish vs Bullish Divergence




S&P500 vs VIX

The S&P500 is trending near long term resistance line (blue) @ 2440, forming Higher Highs, while the 14 day RSI is not able to keep up the same pace, forming Lower Highs so far. This is called Bearish Divergence and often shows an overshoot in price, that will be corrected swiftly. Take a look at the period July-August 2016 which shows a similar case of Bearish Divergence. What followed was a period with more volatility to the downside (after which the uptrend continued, basically the same as my current expectation regarding the S&P500).

The Key Levels to keep an eye on for the S&P500 are 2440 and 2475 to the upside.

Support could be found at 1st Short Term Key Level 2415. If that fails to hold in case of a retest, then the attention will shift to 2400, 2350 and my target area for the summer months 2270 – 2300.

The last time I discussed Volatility, May 7, I warned that a pop of 40% could happen anytime soon. I was (partially) correct, as the VIX surged from 10 to 16, increasing by 60% in a couple of days. Now, I see similar things happening to the VIX as it is shows signs of Bullish Divergence in progress. Early indications, no confirmations, that Volatility is about to rise for one more pop into the price level 16-18 and touch the red trendline/green ellipse.

Now, if we combine this with the latest update of the Cycles of the S&P500, then the month of June seems to be lining up to form a medium term High. I do expect, once the inevitable short term correction of 5-10% is finished, Higher Highs are about to come! Flight to Private Assets: DOW 40k, S&P500 5k and Nasdaq100 10k, here we come! But for now, the short term upside potential seems limited while the downside risks are showing early signs of weakness coming…trade safely and enjoy your weekend!

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Enjoy the charts below!

S&P500 vs VIX

If we zoom out a bit, this will become the picture.

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