1/ The Weekly Chart Looks Weak-ER
2/ Evening Star Flashes on SPX Daily
3/ The Nvidia Bellwether
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1/
The Weekly Chart Looks Weak-ER
Since I pointed out yesterday that the probability of the S&P 500 index (SPX) breaking its year-long upward trend was greater than the probability that it would resume its upward trend, I thought I’d revisit that weekly chart with updated numbers. Spoiler alert, they didn’t get better.
The markets followed NVDA lower (gee, who mentioned that idea?), after news broke that China could tighten AI regulations sending NVDA shares south with the market in tow. The probability now that in three weeks or less SPX could break its trendline jumped from 61% yesterday to an alarming 74% today.
By the way, here’s a quick chart that tells you all you need to know about the various forms of analysis available to investors and what they will tell you about NVDA stock. (Just sayin’ it. I know you’re all thinkin’ it!)
2/
Evening Star flashes on SPX Daily
I don’t usually place a high degree of importance on candlestick patterns and what they indicate for the overall market, but today’s evening star formation on SPX is an exception. This three candle pattern is a textbook example of what could be a short-term bullish-to-bearish reversal signal.
Tom Bulkowski’s extensive research on all things price patterns actually has positive things to say about the utility of this pattern. In particular he points out that his backtesting suggests that it signals a reversal 71% of the time, and that the price leads to a drop between two to six percent within 10 days. A drop that far and that fast could easily break the one-year trendline mentioned previously.
3/
But What the VIX Says…
But not everything you look at indicates bearishness out there. In fact one glaring exception is the Volatility Index (VIX) which seems to give a strong indication that the markets should resume the strong upward swing they started.
To illustrate this indication I have created a chart that turns the VIX upside down. (You can do this by charting 1-VIX in TradingView or other platforms that allow it.) Then I scaled the inverted VIX and the SPX to look similar through 2025, and placed the VIX on top and SPX below.
In theory they should look nearly identical since the VIX is so often inversely correlated with SPX. Up until about three weeks ago they did appear similar, but since then the inverted VIX has rapidly increased, leaving SPX lagging behind. Between the two of these something has to change and usually it is SPX following the VIX. That said, it is never a sure thing where option sellers are concerned and this may be just a pre-earnings anomaly, but I would be remiss if I only gave the bearish perspective and didn’t bring this up. It is actually a very bullish indication for now.
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Originally posted 27th March 2025
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