30,000 Foot view after a wild 10-days

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If one takes the highs of 1987 and the lows of 2003 and ties them together and then projects a line into the future, you get line (1). The Dow hit line (1) and its Fibonacci 161% level in May and the Dow could make no more upward progress after that!

Speaking of momentum, it reached lofty levels at the same time! Momentum recently hit levels last seen in 2000 and 2007.

This was a price point where the Power of the Pattern suggested that “Slow Money members” lighten up on exposure to stocks.

The decline over the past 30-days took the Dow down to the support, of a 4-year rising channel.  Not only did the Dow hit channel support this week, many of the major markets around the world did too. See Global Bull markets tests support HERE

The swift decline really concerned investors, check out the rare situation in the Fear index below.

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The chart above looks at the VIX Index (Fear Index) and compares it to its 200 day moving average. As of yesterday morning, the VIX was 98.9% above its 200MA line. This is the second highest level above its 200 day moving average it in the past 25-years.

Did the swift 10% decline cause fear levels to reach lofty levels? It appears so!

Big Picture…. Heavy resistance at the line (1) in the top chart, which dates a back to the 1987 highs and 2003 lows, remains in place as well as the Fibonacci 161% extension level. Momentum on a monthly basis is still lofty. With support at hand and fear spiking higher, a bounce is due off support.

With resistance and lofty momentum in play, bullish investors DO NOT want the bottom of the 4-year rising channel to give way!!!

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Global bull market still in play, supreme test at hand now!

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The majority of the worlds stocks markets have been in an uptrend the past few years. The global stock market sell off now has the majority of these stock markets testing bull market support channels right now.

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As you can see from the 6-pack above, stock markets from the states to Asia and Europe are all in rising channel bull market trends over the past few years. The declines this month now have each of these key markets testing the bottom of these rising channels.

Even though many say a correction or bear market in taking place right now, from a Power of the Pattern perspective, each bull market trend is still in play and being put to a very big test right now.

Risk is very high at this time in my humble opinion. I say this from a correlation perspective. What do I mean by that?

As you can see the majority of these patterns look the same! Diversification of assets, spreading money around in stock markets in different parts of the world, isn’t reducing risk much, as they are all acting the same.

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The risk here on a global basis is this, we live in a highly correlated world and if one of these markets break support, they all could! If one breaks support and ends its multi-year up-trends, the others could follow.

Over the past few years has it paid to be a buyer or seller when these markets are on support? I think you know the answer  to that question. Will it be different this time.?

The global rising up-trend is still in play at this time and being put to a critical test.  Support is support until broken friends.

I am surprised of this….the decline from a 30,000 foot view has not been very big (support still in play), yet from a sentiment perspective we are seeing indicators reach levels that took place after the S&P 500 declined 50% in 2003 and 2009.  Does it seem strange to you that sentiment levels are as high now as they were in 2003 and 2009 and the market is only off around 10%?

Keep this global perspective in mind, if one of these key markets breaks support, the others could well do the same. It would appear from a Power of the Pattern perspective, the bull market is at a critical price point right now!

 

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Fear index hits levels seldom seen, investors get scared too quickly?

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Did investors get ahead of themselves the past couple of days? From a fear perspective, it looks like they might have!

This chart looks at the Fear Index (VIX) over the past 25-years. As you can see, the VIX has only reached the 48 level, 8 different times in the past quarter century.

Two of the times the VIX hit the 48 level, the S&P 500 had declined 50% and was near the lows of a bear market.

In the last couple of days, the fear index spiked up and hit 50 yesterday as the S&P was nearing an 11% decline.

When looking at 2003 and 2009, the S&P fell 50% and the VIX hit 50 and this time it only fell 11% for fear to hit this lofty extreme. That is a 75% smaller decline to push fear to extremes.

The last time the VIX hit the 48 level was in 2011, when the S&P 500 was declining around 20%. It took almost twice the decline in 2011 to get the VIX to the 48 level. This time it took just a couple of days and a much smaller decline.

Did fear get ahead of itself or did too many investors jump to conclusions too quickly?

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This chart from good friend Ryan Detrick looks at the fear index from a different angle. This chart looks at how much the VIX is above a 10-day moving average. As you can see, only during the crash of 1987, did the VIX get further above its 10-day moving average than yesterday. Did too many jump to conclusions yesterday morning?

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