Yesterday, the SPX formed an opening gap and erased some of its recent gains, which was accompanied by nearly a 10% jump in the VIX. What is particularly interesting about this is the formation of the island reversal pattern on the daily chart. The formation of this topping pattern and simultaneous rise in the VIX after a period of strong gains in the U.S. equity markets alerts us. However, calling the market top and subsequent breakdown would be too premature. To support a thesis about a trend reversal, we would like to see a further fall in the RSI, MACD, and Stochastic on the daily chart and a continuation of the rise in the VIX. Contrarily, to support a case for bullish continuation, we would like to see a breakdown in the VIX (ideally below the lower trendline shown in Illustration 1.02) and mentioned technicals reverse back to the upside.
Illustration 1.01
The image above shows the island reversal pattern on the SPX’s daily chart. Yellow arrows indicate opening gaps and the island.
Illustration 1.02
Illustration 1.02 displays the daily chart of VIX, which bounced off the lower trendline.
Technical analysis gauge
Daily time frame = Bullish (losing momentum)
Weekly time frame = Bullish
*The gauge does not necessarily indicate where the market will head. Instead, it reflects the constellation of RSI, MACD, Stochastic, DM+-, ADX, and moving averages.
Please feel free to express your ideas and thoughts in the comment section.
DISCLAIMER: This analysis is not intended to encourage any buying or selling of any particular securities. Furthermore, it should not be a basis for taking any trade action by an individual investor or any other entity. Therefore, your own due diligence is highly advised before entering a trade.
Illustration 1.01
Illustration 1.02
Technical analysis gauge
Daily time frame = Bullish (losing momentum)
Weekly time frame = Bullish
*The gauge does not necessarily indicate where the market will head. Instead, it reflects the constellation of RSI, MACD, Stochastic, DM+-, ADX, and moving averages.
Please feel free to express your ideas and thoughts in the comment section.
DISCLAIMER: This analysis is not intended to encourage any buying or selling of any particular securities. Furthermore, it should not be a basis for taking any trade action by an individual investor or any other entity. Therefore, your own due diligence is highly advised before entering a trade.
Comment:
The island reversal pattern became invalidated due to the gap getting filled.
Comment:
Today's economic print shows the U.S. unemployment rate rose from 3.7% to 3.9% in February 2024. That's the highest level since January 2022.
