Additional Evidence of a Pending Stock Market Top

Short-term Sentiment

At important market peaks the evidence is not universally bearish, The same for important market bottoms, there’s usually at least one factor that is contrary to the weight of evidence.  

The VIX indicator continues to be bullish.  I’ve noted in prior posts that the VIX  usually makes a higher bottom at S&P 500 (SPX) important tops.   This phenomenon has occurred many times over the course of several years.  On 03/26/21 while the SPX was only marginally below its all-time high the VIX recorded a new low in its decline from March 2020. This implies the SPX could continue to climb for at least several days.  The prior blog noted the SPX could peak on 03/29/21.

Could the VIX be giving a false bullish signal?  The daily SPX chart courtesy of Trading View may have the answer.

The VIX  is derived from  S&P 500 index options.  Another tool to analyze short-term market sentiment is the Put/Call ratio.  The Trading View symbol for the Total Put/Call Ratio Composite is (PC).

The theory behind sentiment divergences is that they reveal subtle changes of trader opinions.  An increase in Put buying as a market rallies implies traders are hedging for a decline.  The recent significant ratio increase of Puts vs. Calls agrees with bearish momentum divergences, specifically the  monthly, weekly, and daily SPX-RSI.

Consumer Staples Sector

The daily chart of the Consumer Staples Sector – Exchange Traded Fund (XLP) illustrates its  Elliott wave count.

My 03/23/21 Blog “Crash Bottom Anniversary Day” noted the XLP could reach an area where the supposed Intermediate wave (5) would be a Fibonacci .50 of the supposed Intermediate wave (1). On 03/26/21 this target was reached; however, the subdivisions of Intermediate wave (5) imply more upside action.  If so, XLP could climb to around 71.00. Assuming the SPX tops on 03/29/21 its possible XLP could continue climbing for a  few more days.

If  the  XLP completes a five – wave  Elliott impulse pattern from the March 2020 bottom, it implies an important peak for that sector and the broader US stock market.     

Published by Mark Rivest

Independent investment advisor, trader, and writer. Articles have appeared on Technical Analysis of Stocks and Commodities , Traders.com Advantage, Futuresmag.com, and Finance Magnates.

4 thoughts on “Additional Evidence of a Pending Stock Market Top

  1. Thanks so much, Mark, for this valuable information. Your technical analysis goes way beyond that of other supposedly stock market gurus. I wish you could host your own TV show!

    Like

  2. Awesome work as always. Do you think a potential start of a bear market will come is a fall of 10% or more or will it be more of a slow and steady process. The market behavior the last few months has been very interesting

    Like

  3. Hi thanks for the compliment. Let’s take one forecast at a time. First we need to see if a top develops. If a top is made the speed of the decline could provide important data. A fast drop is the most likely scenario for the start of a larger bear move.

    Like

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: