While this past week has seen some big swings in lots of stocks with complete stock blow-up crashes in stocks such as Facebook last week in a tear drop stock drop and several casino stocks yesterday such as WYNN and MGM, the stock market averages have not really moved that much at all.
As a result the VIX volatility index (INDEXCBOE: VIX) closed Wednesday below 14, but I believe it will likely rise in the coming weeks. What the VIX does in case you do not know is measure the premiums that options traders are paying for volatility. The VIX measures what they are paying for volatility on the S&P 500.
It can be a contrarian indicator as when the VIX goes above 30 it shows huge fear in the markets as options traders buy puts in mass to hedge. But low VIX readings can also be a sign of complacency ahead of a stock market decline.
So let’s look at the S&P 500 technical analysis stock chart. I have put more indicators than I usually do on it.
The two bands in pink around the price are the 20-day Bollinger Bands. They measure true price volatility and they are coming together. At the very bottom of this chart is the 20-day Bollinger Band width indicator, which suggests that this indicator could fall down to 2.50. But that’s the best case scenario.
The thing about these bands is when they stop coming closer together they begin to go apart, which means that the price moves get bigger. Yesterday the S&P 500 didn’t even move three points by the end of the day. The ROC indicator on this chart is the rate of change indicator using the 20-day moving average. As you can see it’s near zero, meaning that the market has barely been moving on a daily basis.
This lack of daily action in the stock market averages is putting people to sleep right now. It may continue for another few days or even another week or two, but once it ends the market will cause many people to wake up and pay attention who may be on vacation or simply bored by what they see as dull action in the stock market averages.
For now it is indeed individual stocks where the big moves are coming. And so Apple went up 5% yesterday while casinos dumped. And this morning one of the wildest stocks of them all is looking to gap up and fool people once again. I’m of course speaking of Tesla and the Musk hype.
The S&P 500 currently has support around 2775 at it’s 50-day moving average. Once the S&P 500 closes below that indicator look for the volatility to pick up in the stock market.