Sunday, January 5, 2014

SKEW CBOE SKEW Daily Chart Signals Significant Market Top

The SKEW chart was highlighted only 3 weeks ago and ends up catapulting even higher, the highest reading in years. 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 completely off the radar. As the skew moves higher the likelihood of a drastic negative market event increases. Note that 130 and higher  identifies significant market tops. The market bottoms are identified by the lower circles and occur under 115. Something very special, and very negative, is about to happen. Kitty the cat is very scared behind the desk and Fred the dog is hiding under a blanket.

The Fed's QE2 ran out of gas moving into 2011 which created the market top at a SKEW of 130+ in summer 2011. The August 2011 crash followed. The markets print the other significant tops in the spring of 2012 (140 SKEW), then September 2012, then May 2013, and  How interesting it is that the universal trading consensus right now is for the SPX to finish above 2000 in 2014? This is the exact type of bullishness you would expect at a significant market top. In addition, perma-bears have flipped over to the bull side throwing in the towel. The low CPC and CPCE put/call ratios, and low VIX, also verify the rampant complacency in markets currently.

Traders continue drinking the holiday eggnog staggering around as happy drunkards hitting the buy button every 10 minutes without worry or fear. Keystone is calling for a significant market top in early 2014, either January-February, or April-May, and has no qualms in issuing a crash warning for markets right now on the same par as the Fall 2008 and August 2011 crashes. Keystone sits on the short side of the boat, only enjoying the company of the waitress at the moment, and that is only because she is looking forward to a big tip. Every trader on Wall Street is on the long side of the boat, partying like its 1999 without a care in the world. It sure looks like fun with the party in full swing, the band plays on, the Fed's booze is flowing like water and many long traders are now donning lamp shades dancing on table tops.

Assessing the pullbacks for the SPX as a result of the tops called by the SKEW, the sell offs were -280 SPX handles, -165 handles, -130 handles and -120 handles. Thus, to project the coming correction, now at the door step, a move lower of -100 to -300 SPX handles is in play. The average drop is -175 SPX handles with the worse drop during the August 2011 waterfall crash at -280 points and the mildest pull back was the -120 point pull back in May-June 2013. Thus, let's just say the pending correction is perhaps around -150 to -300 handles which creates an SPX downside target of 1550-1700. The SPX 50-week MA is 1659. The SPX has not back kissed the 200-day MA at 1682, and rising, in one-year's time; very uncharacteristic for markets. These two important moving averages create a lower target zone at 1650-1690.

The SKEW prints at 144 now. 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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