Rhetoric heated up again in the Middle East last week, sending stocks down, WTI and Brent prices up, and VIX futures higher by almost 5% on one day. Patterns on the VIX are tough to gauge, but the volatility index looks to be working on a double bottom, says John Eade, president of Argus Research.
There was a five-day/13-day exponential-moving-average (EMA) crossover buy signal on Wednesday, the first bullish indicator since early April. Considering what has transpired geopolitically, we are surprised that option premiums on the S&P 500 Index (^SPX) have not pushed the VIX higher than the recent low-20s reading.
During the tariff-induced drop in April, the VIX spiked to 60, but quickly fell back in the early part of May. For the S&P 500, additional big losses could lead to a five-day/13-day EMA crossover sell signal, which would reverse the buy signal from April 24.
On the downside, initial support from the 21-day EMA sits at 5,940. The 200-day is down at 5,813 and the key breakout level from the inverse head-and-shoulders pattern comes in at 5,775. A minor 23.6% retracement of the advance lies at 5,770.
Daily momentum traced out a mild bearish divergence at the closing high on June 12, and the momentum uptrend has been busted. The Vortex Indicator is close to a sell signal, while the 21-day SPX rate-of-change reading is close to going negative, which is also a sell signal. SPX volume has not logged a large uptick during recent down days, but we have seen a few above-average volume days on the Nasdaq 100, indicating some mild distribution.
