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Tuesday, July 24, 2012

Is a Bigger Selloff in Stocks Ahead?

VIX-ZUCKER
VIX-ZUCKER (Photo credit: Herr_Bert)
A decline in global stocks triggered a brief selloff in the U.S. stock market, but stocks came roaring back. The S&P 500 recovered from intraday losses of1.8% and the Dow Jones Industrial Average and Nasaq (^IXIC – News) followed suit.  A decline in global stocks triggered a brief selloff in the U.S. stock market, but stocks came roaring back. The S&P 500 recovered from intraday losses of1.8% and the Dow Jones Industrial Average and Nasaq (^IXIC - News) followed suit.  How much longer can U.S. stocks defy gravity? Is a larger selloff still looming? When the VIX talks... The VIX is the stock market's main fear indicator. High readings indicate fear, whereas low readings indicate complacency. Over the past week, the VIX (^VIX) has spiked from under 16 to a 7/23 intraday high above 20. And although the VIX is still not at extreme levels, it's not necessarily good news for the stock market.
In 2008 and 2012 a peaking VIX did not coincide with a bottom in the S&P 500 (^GSPC -News). The S&P bottom actually happened against a lower VIX reading. The ETF Profit Strategy Newsletter, recognized this phenomenon, but still warned: "Everytime the VIX has fallen below the $16 level, market tops (some significant) were usually right around the corner.  There was one early signal in late 2010 that took a little bit longer to confirm a top than others, but there were 8 other occurrences that have all marked some sort of short term or intermediate top." ... Continue to read.
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