Will Stock Market Volatility Give Way To Capitulation?

Brandon Van Zee

The S&P 500 (NYSEARCA: SPY) bounced back by 0.80% but the rally faded near the end of the session, which gives the impression that traders may need to brace for further weakness.

Additionally, we haven’t seen typical capitulation behavior that often ends with extreme volume and long lower shadows on the candlesticks.

All four major U.S. stock market indices now have a strongly bearish intermediate postures according to the Market Forecast technical indicator; the last time that happened with all four indices in unison was late December 2018.

All four major indices have “3 Red Arrows” signals. And the price performance of the Russell 2000 (NYSEARCA: IWM) is now essentially flat over the last 3 months.

While all four major U.S. stock market indices have their 10 week moving averages currently above their 40 week moving averages, the prices of all the indices are now trading below their 10 week moving averages which can be an early warning sign for a potential “death cross” down the road.

The VIX Volatility Index (INDEXCBOE: VIX) fell 12% but remains at an elevated level; the U.S. Dollar bounced nicely off of its 30 day moving average to keep its uptrend intact 

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Mid-Week Stock Market Video – May 14, 2019

Some additional insights from today’s stock market outlook video:

  • Foreign bonds are one place that money seems to be drifting towards; the ETF BNDX is now at a 3 month high and has a bullish intermediate posture.
  • All major foreign stock markets have bearish intermediate postures according to the Market Forecast indicator; China bounced today but remains an underperformer in recent weeks compared to the U.S. and other major markets
  • The only sectors in the U.S. with a bullish intermediate posture are the ones aligned with defensiveness: Consumer Staples, Utilities, & Real Estate
  • The week-over-week changes in the Sector Selector rankings show significant movement higher in the Consumer Staples sector and significant movement lower in the Consumer Discretionary sector
  • Our trade application example featured buying a put spread on Grand Canyon Education (LOPE) to try and take advantage of its new strongly bearish posture and lack of a bounce today along with the rest of the market

Twitter:  @BrandonVanZee and @Market_Scholars 

Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.