Last week’s Volatility Index (VIX) sell signal sure played out well. The S&P 500 closed Friday about 2% lower than it was when the sell signal triggered on Wednesday.
That’s not a disaster, of course. But, it’s enough of a storm to wash out some of the overly bullish sentiment and to present a better buying opportunity – which is all we were really hoping for.
As I wrote last Thursday morning, “Folks who are looking to put new money to work in the market might consider holding off for a bit to see if the VIX sell signal plays out. We can then buy at slightly lower prices.”
Now we have a chance to do just that. Here’s an updated look at the 60-minute chart of the S&P 500 that I first showed you back on April 12…
The index broke out to the upside of an inverse head and shoulders pattern. This is a bullish pattern that often signals the reversal from a bearish trend to a bullish trend.
By rallying above the neckline of the pattern – at about 2670 – the S&P 500 broke out to the upside and triggered a move that could reach as high as 2800.
But I cautioned it wouldn’t be a straight shot higher. And when the VIX triggered a sell signal last week, it seemed reasonable to expect a pullback to retest the breakout level on the chart.
That’s what happened on Friday. The S&P 500 has come all the way back down to the breakout level at about 2670.
If the index is indeed headed towards the 2800 level, and the inverse head and shoulders pattern on the chart plays out, then it should start to rally right away off of this level.
Traders should use the current weakness as a chance to buy stocks in anticipation of a rally over the next few weeks.
Best regards and good trading,
Jeff Clark
Reader Mailbag
Today, a note from a Delta Report reader…
Hey Jeff. Typical – I learned of a new ETF from you [from a recent Delta Direct post]. I just made a great trade using UPRO. In the past I learned about SSO from you and this new ETF kicked it up a notch. I’m excited to see the market next week. Thank you.
– Marc
And some kudos for the Minute…
Thank you for your S&P forecasts. It has always been helpful for my trades and I’m getting more in tune with your details.
– Ahmad
Thank you, as always, for your thoughtful insights.
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