Momentum for U.S. stocks continues to be bearish. On 06/08/23 the S&P 500 (SPX) ended the session up .62, the Dow Jones Industrial Average climbed .50%, Nasdaq Composite was up 1.02%. Yet, through most of the day there were more stocks declining than advancing.
There’s a good chance U.S. stocks could soon decline. However, action from the VIX implies a short-term drop followed by a new rally high for at least one of the three main U.S. stock indices.
The weekly VIX and SPX chart courtesy of Trading View illustrates their history.
The VIX is effective in signaling an important SPX top when the VIX makes a higher bottom while the SPX is making a higher top. This phenomenon has happened at each of the prior four SPX peaks. However, just before those important tops, the VIX gave signals that were subsequently invalidated. These premature VIX signals happened in 2017, mid – 2018, early 2020 and late 2021.
On 05/19/23 the VIX recorded a higher bottom with a higher SPX top, which was illustrated in the 05/21/23 blog “U.S. Stock Market – Sentiment and Time Dimensions”.
Subsequently the VIX made a lower bottom invalidating the 05/19/23 VIX topping signal. On 06/08/23 the VIX continued to make a new low in the decline from its 03/13/23 peak. Assuming the VIX made a low on 06/08/23 it implies an SPX drop of one or two weeks with a corresponding VIX rise. Then another SPX rally.
If this scenario plays out a significant SPX peak may not occur until late June or early July 2023.
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