Stock Market Volatility: Technical Analysis

Market Volatility Analysis: Understanding the Current State of the Stock Market

Welcome back to another technical analysis of the stock market video. In this article, we will be discussing the recent volatility in the market, focusing on the S&P 500 ETF (SPY) and the NASDAQ (Qs). We will also take a look at key indicators and the impact of interest rates on the market.

Understanding the Market Picture

Let’s start by examining the side-by-side view of the Industrials, S&P 500, and the NASDAQ 100. The Dow experienced a significant decline of 543 points this week, forming a bearish engulfing candle that engulfed the entire body of the previous week. The S&P 500 also saw a negative picture, coming close to breaking the low of two weeks ago. Similarly, the NASDAQ 100 displayed a downward trend, indicating a potential rollover in the market.

Additionally, when comparing the Industrials and the transports, it is evident that the transports have been on a downward trend for the past five weeks. This negative picture suggests that the market is experiencing a significant decline, with only two up weeks since the high in July.

Analyzing the S&P 500 ETF (SPY)

Taking a closer look at the SPY, we can observe a negative daily picture. The trend line from October has been broken, indicating a potential downward trend. Despite initial indications of a short-term rally, the market quickly rolled over, with the SPY approaching the October 3rd low. This suggests that the market is currently in an intermediate wave two, with a potential target of 382-383. However, it is crucial to monitor the market closely and observe the unfolding of the five waves.

Analyzing the NASDAQ (Qs)

Similarly, the NASDAQ (Qs) experienced a negative trend, with a potential break below the trend line. This adds to the overall negative sentiment in the market, indicating a potential intermediate wave three. The expectation is for the Qs to continue heading south, reaching a target of around 326-325. As with the SPY, it is crucial to monitor the unfolding of the five waves to gain a better understanding of the market direction.

Examining Key Indicators

The VIX, a measure of market volatility, experienced a significant increase on Friday, indicating a strong move to the upside. If the VIX continues to push higher, it may encounter resistance at the key peaks from 2022. This resistance zone, ranging from 34 to 36, will be crucial in determining the market’s future direction.

Another important indicator to consider is the percentage of stocks above their 200-day moving average in the S&P 500. Despite initial indications of a potential upside, the indicator failed to turn and closed below the early October price action. This suggests a negative sentiment in the market, with the lowest close since November 2022.

Impact of Interest Rates on the Market

The high-yield bond fund (HYG) continues to indicate a risk-off sentiment, breaking below the early October lows. This confirms the negative sentiment in the market. Additionally, the TLT, a measure of long-term interest rates, suggests a potential fifth wave down, indicating a push for higher interest rates.

The 10-year yield (TNX) experienced a strong move to the upside, reaching 5% intra-week. If the 10-year yield surpasses the high of 2007, it may indicate a return to highs not seen since 2002. This potential increase in interest rates may have significant implications for the market, similar to what occurred in March.

Impact on Financials

The financial sector, represented by XLF, displayed a negative picture, with a significant decline on Friday. This downward trend suggests a potential move to the downside, indicating a bearish sentiment in the market. American Express (AXP) also experienced a decline, citing a slowdown in transactions in Q3.

Conclusion

In conclusion, the recent market volatility indicates a potential downturn in the stock market. The negative trends observed in the S&P 500 ETF (SPY) and the NASDAQ (Qs) suggest a potential intermediate wave three. Key indicators, such as the VIX and the percentage of stocks above their 200-day moving average, further confirm the negative sentiment in the market. Additionally, the impact of interest rates on the market, as seen in the high-yield bond fund (HYG) and the 10-year yield (TNX), may have significant implications for the market’s future direction. It is crucial to closely monitor these indicators and market trends to make informed investment decisions.