Oops!

With 10 days left before U.S. voters cast their ballots for the next President, we've just learned from a variety of news agencies that FBI Director James Comey has reopened their investigation into Hillary Clinton's handling of sensitive government information due to "the existence of emails that appear to be pertinent to the investigation."

Price on the SPX immediately dropped on this revelation. This is reflected in the drop shown on the SPX:VIX ratio chart below (as of 1:50 pm ET today)...price is now below the 200 MA, and the 3 technical indicators are displaying new "SELL" signals.

We'll see whether this new investigation trumps what I mentioned in my last post and becomes the "October surprise" that has been rumoured to surface in the media for months, or whether it's just a short-term distraction designed to trap market bears.

Either way, volatility will remain elevated as long as price on this ratio stays below the 150 level.

Equity Bear Trap Looming?

Background information on the SPX:VIX ratio can be found here. Equity volatility will elevate as long as this ratio remains below the 150 level (as of 1:45 pm ET today it has fallen below, once again, as shown on the following Monthly chart).

BUT, watch for a potential bear trap, inasmuch as price action and all three technical indicators have morphed into triangular patterns and are nearing their respective apex in readiness for a major breakout, one way or the other, as shown on the Daily chart below.

With the U.S. Presidential election only two weeks away, I doubt whether the aggressively-bullish scenario, that I painted as a possibility in my post of July 1st, is realistic. However, we may see the SPX surge toward that 2280 level, so I'd keep an eye on this ratio to see if price can break and hold back above 150, whether the RSI climbs back and holds above 50, and whether the MACD and PMO re-cross and hold to the upside, as confirmation of such bullish aggression.

VIX Volatility Defies Today's Spike in SPX

As of 12:50 pm EDT today, the SPX:VIX ratio pair is not on board with today's spike in the SPX, as shown on the following Daily ratio chart...instead, watch for weakness ahead on the SPX.

The Highs & Lows of the United Kingdom

We've never seen a wider spread between the FTSE 100 Index (it hit all-time highs today) and the British Pound vs U.S. Dollar forex pair (now at new 30-year lows), as shown on the following Monthly charts...presumably the after-effects of the "Brexit" vote.

The question is, is this the new normal and what will that mean for inflation in the UK if it is?

Deutsche Bank: From Riches to Rags in 9 Years

From an all-time high of 103.14 in May of 2007 to an all-time low of 10.19 (and close at 10.875) today (Thursday), Germany's biggest bank continues its sink into the abyss, as shown on the Monthly chart of Deutsche Bank.

The 3 technical indicators shown on the following Daily chart are no longer supporting a slowdown of its downtrend (as I had reported in my post of February 8th)...rather, they are now suggesting a resumption and acceleration of a stock dump.

This bank stock is now sitting at a tiny fraction of its former value...systemic-risk or value stock? A picture is worth a thousand words...

P.S.
Even more stunning, is the meteoric drop in value (from its June 2007 high of 228.96 to today's close of 5.80) for Germany's second-largest bank, Commerzbank, as shown on the Monthly chart below.

All three technical indicators on its Daily chart below also show evidence of renewed and accelerating selling pressure...reflecting great weakness in Germany's banking sector, despite all of the ECB's various monetary stimulus attempts made, to date, to prop up Europe's financial woes from the onslaught of the 2007/08 financial crisis/recession.

World Market Index Hovers at Make-or-Break Level

All three indicators on this 5-Year Daily chart of the World Market Index are slightly above their respective zero levels, with price hovering above the 50 moving average. They'll all need to hold at or above those levels, otherwise a sharp failure would likely spell big problems for U.S. equities.

Volatility Back Into "Major Conflict Zone"

After today's (Friday's) 53.5 point drop on the SPX, volatility has now fallen back into the "Major Conflict Zone," as depicted on the following 20-Year Monthly ratio chart of SPX:VIX.

As I mentioned here and here, a drop and hold below the 150 Bull/Bear line-in-the-sand level would see a retest of the June 27th lows. You can see from the 60-Day 60-Minute ratio chart below, price closed today at 121.5. There are two remaining gaps below that level yet to be filled, which, when filled, would realize that retest.

Each candle on the following ratio chart depicts One Year. You can see clearly that today's close sits just above the 116.61 open of the 2007 candle.

Each candle on the following ratio chart depicts One-Quarter of One Year. As of today's closing level, upward Momentum is lower now than it was at the open of the Q1 2007 candle...hinting that the buying and bullishness seen on the SPX this year (which pushed Momentum to an all-time parabolic level on the Monthly ratio chart), is, in fact, weak, unsustainable, and without serious merit.

CONCLUSIONS:

Volatility has now risen sharply, after a summer of complacency. Look for wild swings in both directions on these ratio charts as long as price remains below 150. And, if it drops below 80.00, after a retest of the June 27th lows, I'd say that equity markets are in serious trouble and in for a substantial drop.

Complacency & Risk-Taking Leap Into The Unknown

Further to my post of August 2nd, and as of today's (Friday's) close, the SPX:VIX ratio,  has now stepped into unknown territory, while Momentum continues its unparalleled parabolic rise, as shown on the following 20-Year Monthly chart below.

The gaps shown on the updated 60 minute ratio chart below remain unfilled...just a reminder of what I said...

SPX:VIX Gap Fill Looming

The Momentum indicator on the SPX:VIX ratio is at a new life-time high and it's going parabolic, as shown on the Monthly chart below.

There are three gaps up yet to be filled on the following 60-day 60-minute chart of the SPX:VIX ratio. This ratio doesn't like to leave gaps unfilled on this timeframe.

We may soon see a retest of the June 27th lows...a break and hold below the 150 Bull/Bear line-in-the-sand level would do it.

Overlooked, again...

No Pulitzer prize for me, once again, this year, although I'm still available for nomination in the "Special Awards and Citations" category seen at this link.   ;-)

U.S., European & Chinese Financial Weakness

In my 2016 Market Forecast post of December 29, 2015, I mentioned three ratio charts worth monitoring for 2016.

They show the strength/weakness of the:

• XLF (U.S. Financials ETF) compared to $SPX
• EUFN (European Financials ETF) compared to $STOX50
• GXC (Chinese Financials ETF) compared to $SSEC

The following three updated Daily ratio charts show that U.S. and European financials are weak (and weakening) compared with their respective Major Index, so far, this year, while China's financials are also weak and mired in a long-term trading range, just above major support.

Even if U.S. equity markets do break out of their long-term high-basing trading range (as described in my last post), none of these three ratio charts fill me with much encouragement to project that such a rally could last very long if we see continued weakness, and, especially, a deterioration in these Financial ETFs compared with their Index.

A New Frontier Awaits For U.S. Markets

A new frontier awaits for U.S. equity markets to explore. They are fairing much better than other world markets, in spite of the Brexit uncertainty, and look poised to press upwards (likely choppily) for awhile, as shown on the 3-year comparison chart below of the SPX, World Market Index, and British Pound:USD Forex pair.

However, the closer we get to the U.S. Presidential election in November, we may see upward momentum begin to flatten out.

The World Market Index will, however, need to break through and hold above the 1600 major support/resistance level, once and for all (soon). If so, we could see such a breakout rally occur in the SPX -- possibly in a manner as I described in my post of July 1st.

Otherwise, if this index weakens, with sustained force, we may not see sufficient appetite for equity risk in the U.S. markets to push and sustain them to new heights.

Each candle on the ratio chart below of the SPX:VIX represents one year. (My latest post referencing this ratio, complete with updates, can be read here.) So far, the body of this year's candle is forming a bullish engulfing candle of the entire 2013, 2014 and 2015 candle bodies. As well, price closed above a major bull/bear line-in-the-sand resistance level of 150, once again, on Friday.

If we see price on this ratio hold above 150, we'll likely see the above scenario play out for U.S. equities. And, currently, momentum is favouring the bulls (albeit cautiously), as shown at this link to a Year-to-date graph showing gains/losses for the 9 Major U.S. Sectors. I'd keep a close eye on the Financials ETF to see if they suddenly weaken relative to the others, especially if banks in Europe begin to fail. If so, I believe this would negatively impact the rest of the U.S. markets.

Central Bank-Speak Is Not Logical, Sir...

...what Mr. Spock would say to Captain Kirk if Star Trek, The Stock Markets had been a fictional TV series.

However, what we're dealing with is fact...weird or what?

20-Year Monthly chart of SPX

Possible 2016 U.S. Presidential Election Target for the SPX

Each candle on the SPX chart below represents 1/4 of one year. 

Further to my post of June 27th, and, as shown on the following updated 20-Year Quarterly chart of the SPX, the 2016 Q2 candle closed today at a higher level than -- on what was a previously potential bearish hanging man -- the Q1 candle. This bearish reversal warning was not confirmed.

Instead, what we're left with, at the moment, is a wide-range high-base consolidation for the past 6 quarters, with price now near all-time highs.

As shown on the following 20-Year Monthly chart of the SPX, a solid breakout and hold to the upside of this large range could produce a rally to a confluence of the top of a long-term channel and a 200% Fibonacci Extension level of 2280 (yellow) by roughly October of this year, and, eventually, another confluence of the channel top and a 200% External Fibonacci level of 2485 (blue) by approximately December 2017.

That's a very bullish scenario and one that may take quite a bit longer to play out, with, possibly, a lot more volatility sprinkled into the mix than what I've shown...anything can happen between now and then, but the potential is there, nonetheless.