- The S&P needs to make a bearish divergence.
- What happens when the S&P and VIX both close at 2 month highs.
Read Study: government shutdowns are slightly bearish for stocks
4 pm: the S&P needs to make a bearish divergence.
The S&P 500’s weekly RSI is still insanely high.
Markets don’t die on insanely strong momentum. Corrections begin after momentum has fallen a little (i.e. bearish divergence). Hence, I expect the S&P to make a bearish divergence throughout the rest of earnings season and early-February. I don’t expect it to begin a 6%+ “small correction” until at least mid-February.
8 am: What happens when both the S&P and VIX close at 2 month highs.
I did a study titled What happens when VIX and the S&P go up together. The conclusion was simple: VIX had no meaningful impact on the S&P in the medium term. It was not a bearish sign.
This Wednesday we saw the S&P and VIX both close at 40 day highs (2 months). This has only happened 4 times in VIX’s history. The S&P fell a little bit each and every time. It’s a short term bearish sign.
March 8, 1993
The S&P fell 5.2% over the next 1.5 months.
June 5, 1995
The S&P fell 2.1% over the next few days.
March 25, 1998
The S&P fell 2% over the next few days.
December 30, 1999
The S&P began a 10.3% “small correction” almost immediately.
Don’t read too much into this because VIX’s history is rather short. But at the very least, this is a short term bearish sign for stocks.
Read Stock market on January 18, 2018
Here’s what I think will happen based on my discretionary outlook.
- The S&P will make a small 6%+ “small correction” in Q1 2018. The current rally is the longest one in history without a 6%+ “small correction”.
- The S&P 500 will close higher at the end of 2018 vs the beginning of 2018.
I do not use my discretionary outlook to trade. I remain 100% long UPRO because my Medium-Long Term model does not foresee a significant correction at this point in time. I ignore small corrections. I only sidestep significant corrections and bear markets.
I have been 100% long UPRO since September 7, when the S&P was at 2465 and UPRO was at $109.3
*I also have a small Day Trading portfolio. Click here to view my day trades.