The selling is getting red hot and here is why it probably won’t cool down just yet.

Since the beginning of the year we have watched a downtrend with wild swings. Take a look at the chart of the S&P and notice 3 key things:

First, the trend is intact and has room to go to touch the path of the lows we have seen this year. The most recent low back in June puts us on a path to see the S&P move well below 3500. As that drops, we can expect to see the MACD continue down. (the flat line on the bottom of the chart.) It’s footing has been around -115 and it may stretch that a little more with the momentum we are currently seeing. This all points to an extension of this drop but the third key factor is the one to watch.

Advertisement--When momentum gets exhausted, this pattern pays out. Check it out here.

You can see on the chart above that the swings as this market has plummeted have been exponentially greater than what we saw during last years climb to record highs. This bouncy ride down is what we need to get used to. In fact the big factor that shows we should expect a further drop is the jump the VIX has taken. Take a look at the pop this morning:

Historically these spikes in expected volatility signal downside movement. But if this year has taught us anything, it is that we should expect a bounce and rebound at some point soon, jut not right now. Lee Gettess does a great job of showing how to tell when a trend is exhausted and ready to reverse. Check out how he does it here.

Keep learning and trade wisely,

John Boyer


Market Wealth Daily