I have been saying for a while to proceed with caution. The market was setting new highs on light volume, and that is never good! It has been the lack of selling that has kept the bull market in tack. I would rather get the selling over with. This has kept the markets on the edge and is evident by the VIX index. Remember, a VIX index that is moving higher reflects a bearish short-term sentiment.
The chart above shows the VIX over the past month, during which I have frequently advised caution, as it appears traders are proceeding with a similar mindset. The VIX, often called the “fear gauge,” reflects investors’ sentiment about potential stock market swings over the next 30 days. Below is Friday’s VIX index chart. Notice at the end of the day how the chart proceeded higher. This implies bearishness among the traders in the short term.
This week might be a tipping point for those looking to sell, with the PCE deflator coming out on Wednesday, GDP figures on Thursday, and a major jobs report on Friday. I don’t expect any true buying in the markets until a winner of the presidential election is declared. And that could take weeks based upon recent precedent.
This week also includes earnings announcements from most of the major seven. I don’t think they will affect market movement unless they lower earnings projections moving forward.
If a correction does occur, as expected, I believe it will be relatively brief, reflecting what many have anticipated.