The front end of the volatility curve has been inverting on and off in the past few weeks. Sorry not to have given you a heads up every time but there was quite a bit of wipsaw. I am giving you a heads up now because several conditions are deteriorating in the market. Yes we know, we are off with a bad start at the negotiation table with China. Excluding this obvious burden on the US stock market, charts are telling us an important story. The transportation index which has been positively correlated to the stock market in the U.S. for a good while is now giving us a divergence signal: it has been lagging the S&P 500 (see CNBC’s Options action program Oct. 4th, 2019). The S&P 500 chart itself is looking grimmer. In September the S&P 500 index was unable to make new highs. We seem to have a rolling rounding top in place (see daily chart below). I would not be surprised if we tested the June lows (2728) over the next few months. In the shorter term, I have drawn a resistance line on a 60 minutes chart on the S&P 500 Index. The bias remains negative so long as we stay below 2960 level. Next sort-term support level is ay 2855.
Happy trading, enjoy volatility 😉