The situation the market currently resides in is one where market participants cannot decide which force is stronger…
“Powell/Mnuchin/Trump Put” + China Trade Deal Prospects
vs.
Fundamental overvaluation of equities + “U.S. Earnings Recession” + “Synchronized Global Economic Slowdown”
Let’s first look at the technicals on the U.S. equity market (S&P 500) in tandem with the VIX. We know that the S&P 500 has 3 prior failed breakout attempts above the 200-day moving average on 10/17/18, 11/17/18, and 12/3/18. We also know that we currently reside just above this powerful line in the sand once again.
Now, let’s take a look at the VIX. I have circled the prior instances that the S&P 500 was above the 200-day moving average on the VIX chart. These circles all occurred pre-VIX spikes.
From 10/17/18-10/24/18, the VIX jumped from 17.40 to 25.23 in a 45% move. From 11/17/18-11/20/18, the VIX jumped from 18.14 to 22.48 in a 24% move. From 12/3/18-12/24/18, the VIX jumped from 16.44 to 36.07 in a 119% move.
Today, 2/22/19, the VIX is flirting with the 14 mark, which is below the 10-day moving average as other pre-VIX spikes had been prior to their moves.
Some technicals are certainly in play, but now we must ask if we have any catalysts coming to fruition. The answer is yes. On 2/28/19, the long awaited Q4 2019 GDP results will be released. The market already ignored the downward revision of the Atlanta Fed’s potentially lofty estimate. We shall wait and see if confirmation of a downward revision, or a further downside surprise, will have an effect on the market.
