SPX S&P 500 and VIX Volatility Daily Charts; Price Divergence; Cyclical Bear Market; Death Cross

The SPX tumbles lower on negative news bites and yesterday afternoon Federal Reserve Chairman Powell harpoons the markets with his hawkishness. Powell does not appear to be worried about Europe, he whistles past the graveyard planning to hike rates in 2019. The Fed now says 2 hikes are on tap next year down from 3. The street expects a half a hike in 2019. Perhaps after a decade of obscene Keynesian money printing, that only served to make the wealthy more filthy rich, the chickens are coming home to roost.

The SPX and VIX are experiencing a bit of a price divergence. The big stock market selloff began in early October. Stocks plunge into mid-month and the VIX spikes as would be expected. The S&P 500 then takes another leg lower in late October, however, the VIX is not as excited. VIX is at same level at 25-ish. If the downside in stocks had legs, the VIX should be spiking to a higher high.

So stocks recover in early November and the VIX drops. This is where the bulls had a big chance. They need to drop the VIX under the 200-day MA which verifies that it is stock market rally time. Instead, the VIX bounced and the bears cheer. Stocks came down for another low later in November and the VIX was only at 22-ish actually below where it was at for the prior price low. Bears had no oomph. So stocks recover into the start of December. VIX comes down for another test of the 200 and the bulls have another chance, but they drop the ball again.

The VIX bounces off the 200 and the bears cheer. The interesting price divergence now is that the SPX collapsed Monday and Wednesday, however, the VIX remains at its 25-ish level. For the bears to prove that the downside has far more legs, the VIX should already be above 25 and climbing towards 30. But it is not, so far. Thus, for the near-term, the VIX either has to spike higher to prove the weakness in stocks is real, or, the SPX will recover since volatility is not moving any higher and may very well retreat. 2-1/2 hours before the Thursday opening bell for the regular trading session, S&P futures are up +5. The VIX is at 24.79 (the VIX begins trading at 3 AM EST).

On the SPX chart, the black circle shows the death cross (pink below blue) ushering in more negativity. Typically, price bounces after the death cross occurs, and there was a couple days of lift, but it was short-lived. The expectation would be for more of a rally after the death cross. As long as the death cross remains, stocks will be weak for days, weeks and months into the future. The only remedy is the golden cross.

The red rectangle box shows the 150-day MA rolling over flatter now sloping negatively ushering in a cyclical bear stock market. Keep watching this. When the relief rally develops, see if the bulls can turn this back up again and stop the cyclical bear from growling. It would be a signal that the upside has legs. However, as stocks recover, and if the 150-day remains negatively-sloped, the cyclical bear will be sending the stock market lower for weeks and months to come. 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.

Note Added Friday Morning, 12/21/18, at 3:20 AM EST: Speak of the devil. The VIX spikes higher on Thursday, 12/20/18, to 30.30 the highest since February. VIX closes at 28.38. This morning, S&P futures are down -7 and VIX is down a few pennies to 28.22 six hours before the opening bell for the regular session. That's odd since the SPX and VIX prices move inversely over 90% of the time so one of them is wrong. Either VIX has to run towards and above 30 today further tanking the stock market, or, stocks will recover and that tiny drop in volatility will continue into a bigger drop with the VIX moving back down to 25-ish and lower.

Note Added Friday Morning, 12/21/18, at 4:07 AM EST: The VIX turns positive and is up to 28.71. S&P futures drop -16 so the inverse relationship between the two is restored. CPC and CPCE put/calls, as well as the NYMO, all point to a wash-out in stocks and a rally should begin at anytime. The government shutdown drama creates negativity.