Here's a Daily chart of the most recent market action on the SPX as of Friday's close. Price ended around the near-term support level of 2000. You will note that this level sits at a confluence of price and channel support, which has been broken on the last major swing down, during which, the Momentum indicator made a lower low. I'd say that if price re-tests the 1800 level and fails to hold, we could be looking at a possible major decline ensuing, especially if the Momentum indicator makes a lower swing low. Whether we see such a scenario happening before the end of the year remains to be seen...perhaps not until January.
The following Daily ratio chart of the SPX:VIX shows that, although the price on this has not yet made a lower swing low, the Momentum indicator has (in fact, it's made an all-time swing low), which signals further weakness ahead for the SPX and further put-buying on the VIX (in fact, it shows a spike in fear, greater than that in 2007). Also, this is the second (major) time that price has failed to hold inside the uptrending channel from the 2011 lows. As I've said in previous posts, 60.00 is the level to watch for any serious breach to, potentially, signal panic-selling of equities.
In the near-term, I'd watch market action around the 1975 level on the SPX and the 80.00-90.00 level on the SPX:VIX to see whether momentum builds in either direction from there. I'd also keep an eye on what I mentioned in my previous posts regarding:
- Oil [N.B. A further (significant) decline in Oil may be the catalyst to a major decline across the board in all other markets]
- Japan
- World Markets, Commodities, and Currencies
- Small Caps
