Once again the market gapped down at the open but bearish exultations were short lived as price quickly turned and proceeded to squeeze higher throughout the rest of the session. And unless futures turn on a dime in the next hour or so we are looking at yet another gap lower at the open this morning. Are we having fun yet?
Didn’t think so and it once again confirms what I have been warning everyone about for many years now – bear markets are no fun and only look easy on your long term charts. Once you dig deeper – meaning into intra-day activity – much ugliness reveals itself.
Anyway, when things go nutty I usually take a step back and focus on the medium to long term perspective. Time for a market momentum update:
As usual we start with the easy stuff first. The VIX had actually completed a bonafide buy signal in late April which was instantly invalidated one session later. Clearly that was the first warning shot above the bow of USS Unsinkable.
What we are now looking at is a clean advance OUTSIDE the upper BB and until we see a closer back inside the odds of a reversal higher remain limited. Yesterday’s push into 22.5 followed by a close < 20 looked promising but since the futures are once again heading lower we’re most likely going to see another open outside the upper Bollinger this morning.
The Implied Volatility Term Structure (inverted here to match equities) is back in bearish territory and thus far at least I am not seeing any divergences that would suggest an impending rebound.
What is worse is that the recent long signal happened near the highs – just as it did back in early 2018. We all less than fondly remember what happened over the remainder of that year and I truly hope we’re not looking at a repeat here.
The SKEW:VIX ratio painted a solid sell signal a bit over a week ago and so far equities are responding in kind. These sell signals don’t always produce a full scale correction of course but should be taken seriously in correlation with other bearish clues.
Quite a bit more waiting below the fold – please meet me in the lair:
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