In our last Big Picture update on Oct 24, I downplayed the likelihood of the big downturn that more and more analysts were predicting. And, in fact, the drop which began the day before was limited to 34 points – about 1.3%. From there, SPX moved on to new highs, reaching 2597 on Nov 7.
Here, again, it attracted plenty of naysayers. The subsequent drop was a whopping 1.5% — even though the index was overbought, breadth deteriorated and a H&S Pattern completed. The day after the pattern completed, SPX gapped back above the neckline and came close to the previous all-time high.
As we discussed in October, and pretty much every other post since then, VIX continues to play an outsized role in the daily market fluctuations. Each new high has been facilitated by significant drops to below potential support in VIX.
This situation faces us again, today. And, it’s important to understand why.
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