US market chart analysis

Chart analysis of Dow 30, NASDAQ and S&P 500 indexes of US market.  While mid-March low proved to be lower end of upward sloped channel dated back to Sep'10 for all indexes, developments after mid-March differ for different indexes.  The recent new high reached in early May was at the upper end of upward trending channel for Dow, but was at the mid-point of channels for S&P 500 and NASDAQ.  We will keep a close eye on the next dip before bullish breakout.

Dow 30

S&P 500

NASDAQ

S&P 500 Volatility Index (VIX).  Since 2008 crisis, VIX has been trending in a descending triangle, will this correction lead it to go up and test the upper end of the triangle.  We should keep a close eye.

VIX and VXN chart update

Today CBOE S&P 500 Volatility Index (VIX) gave us a small but significant breakout of its 4 month falling wedge formation (A).  Last time in early August, a smaller falling wedge formation was broken out to the upside (B), and the subsequent rise turned out to be continuation of a larger 4 month falling wedge formation.  This confirms the bearish outlook of US equity markets in the short and intermediate term.

Similiarly, Nasdaq Volatility Index (VXN) is at the tip of its falling wedge formation, it's not yet broken out reflecting that relatively smaller fear investors have regarding Tech sector, and indicating Tech remains a strong sector in overall economy.

Bull Market Correction or Start of Bear Market?

Most of time, market participants (hedge funds, prop desks) like to hide their hands as they don't like followers in the early stage of a market turning point.  S&P rebounded from Tuesday low and closed fractionally above 200EMA on Thursday, but failed to close above 200EMA on Friday.  The key question now remains: are we at a bull market correction or start of bear market?  I'd like to use VIX, one of my favorite leading indicators and my favorite PPO divergence analysis tool to dissect early signs of future market direction

As you can see in the chart (click to enlarge), VIX dropped this week to a level that's higher than the level in the week when "European TARP" was announced, however, the PPO has dropped to a level lower than that week, this divergence is indicating that fear is subsiding as of now, and it is a slim of evidence that the market is under bulls' control despite the Friday's failed test of 200 EMA.

Euro Index made a new low last week, however comparing with the low it made in mid-May, the PPO is picking up, this divergence is suggesting a trend change is potentially forming.

Similar but contrary to Euro Index, US Dollar ETF (UUP) is showing a divergence between price move and PPO.