Yesterday, equity market volatility hit levels that we had not seen since back in late September , so I thought I might update the technical picture.
We have been suggesting that with diverging monetary policies (and the US federal reserve poised to raise rates on Wednesday), tightening credit markets (especially in the High Yield markets), slowing global economic growth and falling commodity prices (especially oil) that volatility could possibly turn higher. Add in some record options ($1.1B) expiring next Friday that may trigger further selling and you get quite the mix.
We have also suggested that higher levels of cash and cash equivalent assets in a portfolio would be a good defensive tactic given all the current uncertainty.
In the S&P 500, failure to see enough buying to push prices above the down-trend lines from May and July has traders testing buying support:
The most recent buying support at 2020 failed late in Friday's trading session. This may bring longer term sellers into the market (as they lose confidence) and depending on volume, there is not much previous chart support until 1870 which is about 7% lower.
The good news is that there are up-trend lines extending back to 2011 and 2009 that should bring bargain hunting to long-term buyers who still believe in an extended bull market:
The weekly charts show trend-line support just above 1900 (line from 2011 low) and below that at or about 1750 (line from 2009 low).
Despite the short-term volatility, until these longer-term trend lines start to fail, the bull market remains in tact (higher highs, higher lows). However, recent inability to make higher highs (indicating a "tired"market) does make the near-term situation vulnerable to tests of the recent August lows.
Technically, the secular bull market that has been in place since 2009 will still be in place as long as the 2007 high, just below 1600 holds. But that is a long way from where we are right now.
The Global Equity Market picture is not quite so positive:
The benchmark global index broke through its long-term up-trend line from 2009 back in August and is now, after failing to move above the down-trend line last week, looking like another leg lower is likely to ensue.
Scott Tomenson,CIM Managing Partner, Chief Investment Strategist