Sunday, December 8, 2013

SKEW CBOE SKEW Index Weekly Chart Signals Significant Market Top

The SKEW helps ascertain the likelihood of a major negative market event occurring. A reading at 100 indicates that equity markets are performing in a relatively normal steady-eddy pattern with the chance of a black swan event no where indicated. As the skew moves higher the likelihood of a drastic negative market event increases. Note that above 130 marks all the significant tops over the last 3 years. The market bottoms are identified by the lower circles. The Fed's QE2 ran out of gas moving into 2011 which created the market top at a SKEW of 130+. Markets printed the other significant tops in the spring of 2012, then September 2012, then a small pull back in February this year, then the larger April-May selloff, and then the August selloff.

Assessing the pullbacks for the SPX when SKEW called the tops, the selloffs were, eyeballing them off a weekly chart, 280 handles, 165 handles, 130 handles and 40 handles only using the 4 circles from left to right since they are at a SKEW of 130+ and higher. Thus, to project the coming correction, a range of from 40 to 280 handles would be expected, dropping the lower and upper number, a range of from 130 to 165 handles would be expected. The average of the 4 is 154 handles. Tossing out the high and low the average is 148 points. Thus, let's just say the pending correction is perhaps around 150 handles or more which would create a downside target at 1664-ish (1814-150). The SPX 50-week MA is 1631 and rising so a target area of 1630-1670 appears reasonable. Remember, the SPX has not back kissed the 200-day MA at 1657 and rising in one-year's time, very uncharacteristic for markets. A back test of the 200-day provides further street cred for the lower 1630-1670 target area.

The long traders were high-fiving each other on Friday during the drunken upside market orgy. One trader proclaims "only an idiot would short this market" and another shouts "I haven't had this much fun since October 2007." Other long traders say "talk of bubbles is ridiculous and silly" and "Chairman Bernanke and future Fed Chair guarantee that there are no asset bubbles existing in markets right now." Fund managers are taking Ma and Pa Kettle's nest egg and placing it 100% into dividend stocks. The Koolaid is mixed with wine and both are flowing freely as traders enjoy the Caligula-style upside market orgy. The white circles show the significant market tops over the last 3 years, which are guaranteed after a SKEW of 130+ is printed. The SKEW prints at 135 over the last couple months. What do you think is about to happen? Watch your wallet. This information is for educational and entertainment purposes only.  Do not invest based on anything you read or view here.  Consult your financial advisor before making any investment decision.

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