26, we mentioned the chart of the VIX "Fear Index" (VXX)
relative to the S&P 500 (SPY) represented a good way to monitor risk in
an environment with some conflicting signals. An updated version of the
chart, as of Thursday's close, is shown below. The bulls made some progress
with the blue upward-sloping trendline being
violated, which shows decreasing levels of fear relative to the willingness
to take on risk (see red arrow).
Obviously, Friday's GDP report can
flip the chart above one way or another, but another bullish signal was given
on Thursday. Near the blue arrow above, notice that RSI (Relative Strength
Index) made a lower low and closed below 50. The lower low represents a
short-term bearish divergence for the VIX relative to the S&P 500
(bullish for risk). The divergence increases the odds of continued VIX
We originally posted the chart below
23. If you look closely, price moved to/slightly above the trendline below 1,400 on Thursday. There is some white
space above the chart, which could be filled by price.
Just as the odds of rain increase
when skies shift from clear to cloudy, a bullish turn in market breadth
increases the odds of a sustainable bullish turn in stocks. Keep in mind,
cloudy skies do not guarantee rain. The chart below is an intermediate-term
measure of market breadth (the Summation Index). Market breadth refers to the
percentage of stocks participating in an advance. Broad participation leans
bullish. On Wednesday and Thursday, the Summation Index moved higher - it had
been declining for several weeks. The green arrows show where market breadth
started to improve. The S&P 500 is shown at the bottom of the chart.
Commodities continue to lag stocks,
which is not surprising in a deleveraging environment (a.k.a. debt
reduction/less trading on margin). If you are a silver or gold bug, the chart
below has yet to show much in the way of hope. The performance of silver
(SLV) relative to the S&P 500 (SPY) has a bearish/downward-sloping
9-month exponential moving average (EMA) and a still ugly looking MACD, which
measures momentum (see red arrows).