In the stock market, the VIX volatility indicator has formed a signal to buy stocks, although internal market indicators remain negative. MarketWatch reported this, citing an analysis by trader and investment adviser Lawrence McMillan.
The S&P 500 was slightly more than 2% below its record close of August 13, despite rising oil prices and interest rates. The index’s rally over roughly the past 16 months has been driven largely by a relatively narrow group of companies linked to artificial intelligence, while many other stocks have performed more weakly.
Negative market breadth indicators
According to FactSet, the S&P 500 rose 0.2% on Friday, but nearly two-thirds of its constituent companies ended the session lower. Simple market breadth indicators, which account for the difference between the number of advancing and declining stocks, have been issuing sell signals for some time and have entered deeply oversold territory.
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The number of stocks on the New York Stock Exchange making new annual lows exceeded the number making new highs for 14 consecutive trading sessions. On Friday, the ratio was 189 to 34. McMillan estimates that the indicator will remain negative until the number of new highs exceeds the number of new lows for two consecutive days.
Signal from the VIX index
At the same time, the Cboe Volatility Index, or VIX, did not remain above its 200-day moving average. On Friday, the index closed at 14.87, while the 200-day average stood at 18.09. During the week, the VIX climbed to an intraday high of 18.94, but then declined.
McMillan noted that the decline of the VIX below 15 after a brief jump of more than three points formed a so-called “spike peak” signal to buy stocks. The last time such a signal appeared was in early June. The analyst also called the 7580 level for the S&P 500 important: if the index closes below it for two consecutive days, this would, in his view, indicate strengthening positions of sellers.
