Last year, in July, an important trend change took place. Volatility exploded in all markets, certainly stocks and crude oil, leading to huge losses in very short periods of time. Since then, key indicators for stocks have been the volatility index VIX and crude oil, as explained here.
On the chart of the S&P 500, we clearly see that July was the start of huge volatility. Moreover, today’s price is around the same level as back then. Though prices have gun through wild gyrations, stocks have basically gone nowhere in the last 9 months.
The VIX index, being an important indicator for stocks, started a clear uptrend since last July. In March of this year, however, that uptrend was broken, at least slightly. Today, VIX is testing that trend.
The second indicator, according to our view, is crude oil. As seen on the chart below, crude attempted to break out from its downtrend around two weeks ago. Today, crude close right at the trendline.
These are important levels, and they should not be underestimated. Things can obviously go both directions from here. If the above discussed indicators go bad (lower crude, higher VIX), then there was a false breakout / breakdown, which is definitely NOT a good sign for stock markets. On the other hand, a succesful test of the trendline would be very good news for stocks.
In other words, the coming two weeks will be critical, and determine the next mid-term trend.
