"No warning can save people determined to grow suddently rich" - Lord Overstone

  • 2 hours Gold Selloff Continues As Dollar Climbs Higher
  • 3 hours Gold Investors In A Frenzy Over Sunken Russian Warship
  • 4 hours The New King Of Electric Cars
  • 5 hours BlackRock Goes Bitcoin
  • 6 hours U.S. Banks See Best Earnings Report In Years
  • 8 hours The Case For Gold Is Not About Price
  • 10 hours Stock Market Sentiment Turns Bullish
  • 1 day What Is Bitcoin Really Supposed To Be?
  • 1 day The Surprising Media Giant Taking On Netflix
  • 1 day Cybersecurity Stocks Are Red-Hot As Election Looms
  • 1 day Americans Grow Weary Of U.S. Trade Policy
  • 1 day What Putin Really Wants From Trump
  • 1 day Europe’s EV Sales Growth Is Slowing
  • 1 day The Looming "Hyper-War"
  • 2 days The Real Winners Of The Real Estate Business
  • 2 days 3 Reasons Small-Cap Stocks Are Booming
  • 2 days Chinese IPO Fervor Slows As Xiaomi Disappoints
  • 2 days How Corporate America Is Filling The Gaps In Public Education
  • 2 days Bezos’ Space Flight Gamble
  • 2 days Is This The Answer To High Gasoline Prices?
Stock Market Sentiment Turns Bullish

Stock Market Sentiment Turns Bullish

Quarterly earnings reports have lifted…

3 Reasons Small-Cap Stocks Are Booming

3 Reasons Small-Cap Stocks Are Booming

As major market indexes waiver,…

The Biggest Winners Of Q2 Earnings Season

The Biggest Winners Of Q2 Earnings Season

The second quarter of 2018…

Marty Chenard

Marty Chenard

Marty Chenard is an Advanced Stock Market Technical Analyst that has developed his own proprietary analytical tools and stock market models. As a result, he…

Contact Author

Charts and Commentary

What is one of the Key Elements seen in all Stock Market Corrections?

Market drops and corrections all have one central element ... fear. When fear levels increase significantly, investors go into a selling mode. One of the best measures of fear levels is the Volatility Index (Symbol: VIX).

Key market correction elements of importance on the VIX are:

  1. Its trending direction.
  2. Where the VIX is in relationship to support and resistance lines, and ...
  3. Increasing Fan Lines.

So, this morning, let's take a look at where the VIX and discuss where it is relative to points 1 and 3.

First, the Volatility chart below goes from July 2006 to January 10th. 2007. A Volatility peak was made on July 13th. of last year. That became the point where we draw fan lines from, after the primary trend ended. The primary trend ended on November 24th of last year.

After that, we started drawing fan lines on the VIX. Each time a fan line is drawn higher on the VIX, it depicts a sequential increase of rising upper resistance levels. The higher the resistance levels increase to, the higher the fear level rises for investors.

We have now worked our way up to a Fan Line Resistance Level of 4 as seen on the chart. That means that there is a long term trend in the VIX that is slowly working itself higher. After each Fan Line is broken to the upside, the VIX moves to a new, higher ceiling level of fear. If the trend of increasing Fan Lines continues, we will reach a "critical level" on the VIX where investors will have a shift from confidence and bravery to "fear". When the shift goes into a "fear modality", investors start selling their stocks and we have a pull back or market correction. (Paid subscribers: You can view the exact VIX number where that critical level is reached on your daily update pages.)

We covered Fan Lines, now what about its Trending Direction?

If you look at the December to January 10th. period on the chart, you can see two blue channel lines trending to the upside. Since the December 15th. low, the VIX has been moving up to the channel's resistance line, and then down to the channel's support line. Each time it has done this, it has made a higher/high followed by a higher/low. This is the definition of an up trend. So the short term trend is also moving up.

The bottom line of this VIX action, is that investor confidence is slowly eroding over time. If the VIX trend is not reversed to the downside, then we will surpass the "critical level" where investors will shift to a fear mode.

From a risk evaluation standpoint, as long as the VIX continues its up channel, your risk of losses on your invested capital is increasing.

Please Note: We do not issue Buy or Sell timing recommendations on these Free daily update pages. I hope you understand, that in fairness, our Buy/Sell recommendations and advanced market Models are only available to our paid subscribers on a password required basis. Membership information

 

Back to homepage

Leave a comment

Leave a comment