The extremes become ever more extreme.
Jeff Bezos will be launching into space around next week maybe he can take a picture of the Nifty index for us and bring it back.
Nifty managed to close near all-time highs levels which is almost 112% higher from previous years' lows where it currently sustains at around 600 points above the 5MA. The trends are intact on the Nifty and Banknifty. If you look at the INDIAVIX it's actually getting as narrow as it can get reaching out to levels where a pop seems quite possible.
A 20%+ correction would feel like armageddon right now and this market may not correct 20% this year, but frankly, it would be healthy in cleansing out the speculative excess and likely set up for a major buy. But for now, markets can’t even manage a 2% pullback.
There are no bears, only bulls. Who’s gonna cover their shorts and buy stocks during the big volatility event if everybody is already in? An academic question at best at the moment as nobody can even imagine any downside in markets that now print record highs almost every day. I can’t give you a day and time, but I can give you the structures and you can choose to ignore them of course.
What they tell me is this: It’s coming, just a matter of time and perhaps the right trigger, and then downside, currently so elusive, may come faster and deeper than anyone expects.
Risk appetite ratios continue to diverge from the S&P 500. The index is less than 0.25% off its highs and more than one-third of its stocks are down at least 10%.
I haven’t touched or changed these trend lines in months, price keeps respecting these structures cleanly, hence they matter from my perspective and they keep building for a coming volatility event.
Also of interest: All of these volatility structures are forming on top of the previous ones in the years before. This is surprising considering the high price levels we’re seeing and the pronounced calm in markets.
As the volatility structures keep tightening across the board the next big spike may not stop at the respective trend lines. How dramatic such a move (when it comes) will end up being will depend on a lot of factors, not only on technicals but also positioning.
And it’s fair to say we’ve never seen such a one-way positioned market.
The extremes become ever more extreme, and when things have extremely stretched the reaction to the downside is often much greater than anyone can imagine. Nobody will give us a day and time as tops are processes, but the underlying picture keeps bubbling as it shows ever more weakening beneath the surface.
In correlation flow breakdown watch: CNXCOMMODITY vs U.S. Dollar Index. With dollars near support levels, possibilities of bouncing off may also force commodities to take a breather.
All this can take months to play out, but the message of all these patterns remains the same: A big volatility spike is coming and this ongoing one-way market strength, ever so desperate to buy every single little dip, continues to disconnect markets ever further from historic trends.
The trick will be to recognize when things have changed and these volatility structures above give us a clear guide as to when that moment has arrived: When the trend lines are no longer lines of resistance. One day the character of this market will change, and when it does it will happen suddenly, and when it does participants may perhaps find themselves psychologically unprepared.