It has been a while since I provided an update on either the weighted average standardized VIX (WASV) or the Price/Volume Diffusion Index (PVDI). This is largely due to the lack of anything on the way of a interesting signal. Well, the WASV is, in my opinion, is beginning to show the market is topping out, at least in the short-term. I say in the short term because there has been no apparent secular change in the trend of volatility while the PVDI remains positive. First, the WASV.
Outside of spikes in the last few years, the WASV has generally remained below the 0 demarcation. This is my opinion is a reflection of the market dynamics. Currently, the WASV is sitting at the 0 level, up from levels below -1 just a month or two ago. This is as the word 'risk' has entered the lexicon of traders across the various markets worldwide, a trend I expect to continue.
This is also as standardized skew of VIX is coming off of levels well above 2. See the chart below.
This suggests, to me, that the volatility expectations embedded in S&P options is coming off more extreme levels and the VIX is likely to be entering a more permanent (or at least permanent for the VIX) higher level. This is likely to dent the market.
To what extent, I am unsure. For one, the WASV shows no apparent signs of a secular trend. Additionally, the PVDI remains above the 50 demarcation, which can be seen below.
Presently, the PVDI is sitting at 66.25, where it has been for a few weeks. I think it is likely that the PVDI will turn down shortly, as both the summation index and the slope of the summation index (neither shown) have turned down. A demarcation above 50 suggests some price momentum and/or volume providing support for higher equity prices in the 6 months to a year.
The last point said, I am thinking the market will experience a mild pullback here, as risk reprices, and I am going short the the S&P 500.
Outside of spikes in the last few years, the WASV has generally remained below the 0 demarcation. This is my opinion is a reflection of the market dynamics. Currently, the WASV is sitting at the 0 level, up from levels below -1 just a month or two ago. This is as the word 'risk' has entered the lexicon of traders across the various markets worldwide, a trend I expect to continue.
This is also as standardized skew of VIX is coming off of levels well above 2. See the chart below.
This suggests, to me, that the volatility expectations embedded in S&P options is coming off more extreme levels and the VIX is likely to be entering a more permanent (or at least permanent for the VIX) higher level. This is likely to dent the market.
To what extent, I am unsure. For one, the WASV shows no apparent signs of a secular trend. Additionally, the PVDI remains above the 50 demarcation, which can be seen below.
Presently, the PVDI is sitting at 66.25, where it has been for a few weeks. I think it is likely that the PVDI will turn down shortly, as both the summation index and the slope of the summation index (neither shown) have turned down. A demarcation above 50 suggests some price momentum and/or volume providing support for higher equity prices in the 6 months to a year.
The last point said, I am thinking the market will experience a mild pullback here, as risk reprices, and I am going short the the S&P 500.
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