Bearish Volatility Divergence Precedes Break From Historically Narrow Equity Trading Range

posted in: S&P 500 | 0

For the last 3 week U.S. equities have traded in a historically extreme narrow trading range; heading into today’s session the S&P 500 had spent the last 13 trading sessions trapped within a .74% trading range. Today the tightest trading range in more than 20 years is resolving to the downside:

 

SPY (Daily)

SPY_vol_divergence

Notice how implied volatility (VIX at bottom of chart) began to turn upward a couple days before today’s downside breakdown in the S&P. If the breakdown holds or accelerates to the downside into the close the minimum initial downside target is the rising 50-day simple moving average which happens to coincide with previous resistance near $211.

In the Trading Lab at CEO.CA we highlighted a setup in SDS (UltraShort S&P 500 ETF) earlier in the trading session. To follow our trade updates and market analysis in real time you can subscribe to CEO Technician Premium using the PayPal button below:



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