Keystone's SPX:VIX Ratio Indicator Weekly and Daily Charts Overbot Negative Divergence

The SPX:VIX ratio is one of Keystone's turn signals. The 68 level is key and as price falls through 68 a market crash signal occurs. Typically, the drop in the Dow Industrials that day will be from 100 to 300 points followed by continued weakness ahead.  Remember at Christmas time the markets were going over the falls but the fiscal cliff resolution saved the day? So the key 68 level is far below and it will be a few days and a week or three before the 68 is in play. But in the mean time, the SPX:VIX ratio is useful in forecasting the current market top. The daily chart shows a higher high in the ratio, now at an obscene 122, printing higher highs, but note the universal negative divergence by the indicators. Further, the negativity in December was never flushed out properly. Markets are pushed higher on political can-kicking and the Fed's easy money policies, price discovery be d*mned. Thus, the negative divergence wants to see a smack down.

The weekly chart shows the ratio now at levels from early 2007, when the wine was flowing like water. Everyone was a big shot back then driving new cars that were financed off home equity lines. Homes were used as piggy banks back then, and to some extent all that behavior continues. In late 2006 and early 2007, the SPX was over 1500 with a VIX moving through 10-13. Today the SPX is over 1500 with the VIX at 12.46 placing an intraday low for this year at 12.24. It's all the same, high stock prices with trader complacency. The roll over occurred in 2007 with the negative divergence, then in late 2008 as the crash was occurring, the MACD line, histogram and stochastics provided the positive divergence pop. Four years of money-pumping later, the stock market is bloated to new highs and traders have no fear or worry since the Fed will step in to pat everyone's behinds.

Projection is for markets to top now and roll over. The SPX:VIX ratio should receive a spank down now which means the SPX will drop (numerator) and the VIX will jump higher (denominator). It will not be surprising to see the VIX pop to 15.50-16.00 very quickly. 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.