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JoeHentges
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I am an equity option and futures trader. I have been trading the markets since 1979. More about me on my website
My blog:
Beyond the Chart
My book:
7 Keys to Successful Option Trading
  • Beginning Or End? | Weekend Stock Market Update | 01/25/14 0 comments
    Jan 25, 2014 5:36 PM

    (click to enlarge)We are at a crossroads. Is this the beginning or end of a corrective move? As I discuss in the video, the market needs to reverse course immediately and not take out the December 12 low. If it can do that, then this January correction can end and we can push higher over the coming weeks.

    Is the bull finished?

    On the other hand if the Dow Jones Industrial Average (DJIA) does indeed break the December 12 low then I have a hard time saying we are still in a motive wave up. As I describe in the video, the S&P 500 (SPX) makes a good case for 5 waves complete and the beginning of a correction. If the December 12 low breaks then I think the correction is underway.

    It appears that as long as the December 31 high of the Dow and the January 15 high on the SPX are not broken then the market is starting to roll over and head down. Note the SPX intraday high on January 15 was only 1.4 point higher than the high on December 31, and the close was only .02 higher.

    There is much to correct

    And if the move up from the October low is finished, then we are about to correct the 5 waves up from June 4, 2012 which is 4,469.68 points on the DJIA. We will know more as trend lines break and we move into a mode where we have lower lows and lower highs. So, we are at a crossroads, beginning or end? Next week will probably tell us.

    And if we are beginning a correction remember stocks go down much faster than they go up. The old saying, 'it takes volume (buying) to push stocks up, but they can fall under their own weight'. There have been many examples of this even in the last 5 years of this bull move.

    Is the VIX telling us anything?

    The VIX made a big move on Friday but we are still at relatively low readings, less than 20. As the VIX rises it will be signally more volatility. So when the VIX is extremely quiet and low, is that a sign of a top?

    Taking a look at the 50 day simple moving average (sma) of the VIX, the 50 day sma of the VIX is now 13.55. The recent low reading for this was 13.42 on January 22. The last time we had a lower reading was 13.33 on May 17, 2013. Prior to that, you have to go back to June 6, 2007 for a 13.28 reading.

    The all time low 50 day sma reading is 10.73 on February 23, 2007, 8 months before the 2007 peak. We have had some periods in 2005 and 2006 where the readings were below 13.33. Other than those, these are the lowest readings since 2000. So although they don't always signal a top, low readings do appear at or near the top. It signals that there is no fear, complacency, just a general bullish tone. So it's one more piece of the puzzle,

    Which brings us back to beginning or end? What do you think? Leave a comment and let us know.

    View my video.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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