Yesterday we wrote about the fact that last week’s rebound had brought the market (in the form of the S&P 500) back to a first zone of resistance (former support). We actually suspected the market may try for the second resistance level above, but it was not to be. Here is the situation at the time of writing (obviously, high intra-day volatility means that today’s candle can change relatively quickly):


The SPX rebound hasn’t managed to go beyond the initial lateral resistance level – click to enlarge.

Interestingly, this renewed decline isn’t really greeted with a lot of fear in the options markets as far as we can tell. The Chicago Board equity put-call volume ratio ended below the 70 level yesterday, and the VIX isn’t rising a whole lot either. We are not sure if this is a sign of complacency, but on the face of it, that is what it seems to be (quite often a failure of the VIX to rise much in a sell-off indicates that the market will soon reverse up again, so take this with a grain of salt):

CPCE and VIXThe equity put-call volume ratio and the VIX – complacency? – click to enlarge.


 In similar situations in the past, the market has usually at the very least retested the initial lows or even undercut them. Moreover, the market action leaves the possibility open that a crash wave is actually underway. Note that this actually wouldn’t change if the market recovered from a sharp intraday sell-off – such recoveries happen quite often during crashes.

All in all the action doesn’t look particularly good and largely seems to be driven by a global growth scare, as it becomes ever more obvious that economic growth is weakening in a number of regions (including the US). The only potentially positive sign we can detect at this stage is the relatively small move in the VIX, but as always, there is more than one way of interpreting it.

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