Updates - S&P, US Dollar, VIX, VIX/VXV

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This is the S&P 500 cash chart. Today the market formed a doji candlestick right at the upper channel line of the channel drawn. I noted yesterday that the 78.6% retracement level of the decline is at 1175. That is a little overhead from here. A doji means that the market is in a state of balance. After a sustained trend that can indicate a turning point. However, if there is no reaction to the downside from here, then it may not mean a lot.

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This chart is the US Dollar index. Of significance is that the dollar index was up today. It has been so negatively correlated with stocks recently, that I wonder if it is a tell that these markets may be at a turning point. A close above the 5 day EMA would be a first early signal that the current trend is weakening or reversing. Again, sentiment is very negative against the dollar, and it is due to rally. So even if it doesn't from here, keep it on the radar.

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The VIX made a big move today. It gapped down and opened below the lower bollinger band. That doesn't happen too often. The last 2 times were mid Jan 2010 and mid April 2010 - not good times to be long. Times before those over the last couple years were generally near short-term highs at least, though not all were at intermediate term highs.

At times the VIX will diverge with stocks before stocks turn. So maybe the VIX will bottom but prices may move higher a bit before topping. I don't know - just stating some past tendencies.

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Now this chart gets my attention!! The VIX/VXV ratio, which is short-term volatility divided by longer term volatility, is at a new low. The VXV is only about 3 years old, but today is the lowest ratio since the VXV inception.

This ratio has been good at highlighting rally highs over the last few years. There was one exception in July 2009 which threw me off, though in retrospect, it occurred after a correction rather than at a high, so that should maybe have been somewhat discarded. But looking at the chart above, the prior lows in the ratio were April and January of this year, early August of this year, and May 2008. Those were all times which saw significant corrections.

So, while there are not a huge amount of indicators screaming market top here, there are some high quality ones, and some confirming sentiment amongst related markets like the US Dollar, Euro, and gold. In addition, the market still may be forming a nice harmonic/fibonacci topping pattern.

Don't be surprised to see this market begin a significant pullback very soon.