EarningsBeats.com Digest for July 6, 2021
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Join Us for Today's Webinar:
2021 2nd Half Market Outlook
Today, 4:30pm eastern
During this session, Tom Bowley, Chief Market Strategist, will provide his latest analysis of various inter market relationships, determining the sustainability of the current stock market advance. In addition, Tom will give his outlook for the 11 sectors and provide a list of industry groups that he believes will lead the pack in the second half of the year. This will be a must-attend event for anyone with significant exposure to U.S. equities.
This event is free and open to all subscribers of this newsletter. You will receive webinar instructions prior to the event start time. The session will be recorded for those who are unable to attend live. See you there!
Identifying Short-Term Tops
First, let me be clear. Short-term secular bull market tops are completely different animals from their long-term secular bear market counterparts. In the case of the latter, warnings signals - fundamental, technical, and sentiment - are generally tripping over themselves. The former, however, tend to be much more subtle and a bit more difficult to decipher. One short-term topping signal occurs when prices are rising, but so is fear.
The Volatility Index ($VIX) is our gauge to help us with this signal:
The four red arrows highlight the four times over the past 5 years where the positive correlation between the S&P 500 and the VIX has reached 0.50. It doesn't happen often. The normal relationship between the two is an inverse one. As the S&P 500 falls, fear builds and the VIX rises. There's your normal inverse correlation. But it's very important to watch this chart when the S&P 500 rises. The VIX should fall.
When the VIX rises alongside the S&P 500, the message it sends is that the stock market is growing more fearful, despite higher equity prices. Any time the stock market is nervous, it reacts worse to bad news. So a higher VIX in a rising market environment can be particularly useful in helping us identify short-term market tops. In the four cases above, three resulted in a painful short-term period of selling and/or consolidation.
I'll be discussing the VIX relationship and much, much more later today in our FREE "2021 2nd Half Market Outlook" webinar. It starts at 4:30pm ET and YOU ARE INVITED! We'll be sending out room instructions later today. I hope you'll be able to join us. But if not, we'll make sure you get a copy of the recording.
Happy trading!
Tom Bowley
Chief Market Strategist
EarningsBeats.com
Better Timing. Better Trades.
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