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So what does the last four tops in the S&P 500 have in common? If you look closely at the chart below, you will notice that the RSI(14) indicator for the % of stocks above the 50-day moving average was on the cusp of breaking below the 50% mark (click to enlarge).
So where is the RSI(14) indicator now??
Cheers …. Leaf_West
Whether or not the overall market is currently making a top is debatable and something I will discuss in this weekend's newsletter (make sure you sign up on the blog's homepage). Nonetheless, I thought tonight's blog could discuss what investors should be looking for when analyzing charts as this could help investors in the days ahead.
Tops in stocks and markets are almost always a somewhat long drawn-out process. Therefore, there are often plenty of pitfalls for investors who often get sucked into believing that a short-period of weakness/retracement was in fact the actual "top". Investors of all stripes are often too quick in trying to protect hard earned gains and more times than not, all they end up doing is selling their positions out well before their investment reaches the real end to its current trend/move.
The $VIX, or the CBOE Volatility Index measures the market expectations of the near-term volatility conveyed by the S&P500 stock index option prices. Most investors look to this benchmark when talking about the amount of fear priced into the market. A more accurate way to describe this however is to say that the $VIX is the price paid for the current volatility in the market. That price can change based on how aggressive or complacent investors are.
Let me put that another way …. Is AAPL at $334.00 more expensive than SHZ at $10.24? Well, at first blush it looks that way because the absolute price is much higher. But the reality is that when you look at each company's near term earnings potential, you will draw a different conclusion.
I blogged on my site pre-market on January 4th about how the early action in the SPY etf was inside the range of the last swing high and low from the prior day. That observation brings about an important point that I think many investors /traders miss … that is they don't establish the expected initial trading range for which ever stock they are watching.
