Stock Markets are showing signs of weakness and an imminent reversal (see above video).
The volatility index (VIX) – also known as the market’s “fear index” – surged by nearly 16% on Friday and closed above its 21 EMA. A rising VIX usually has bearish implications for the stock markets.
The Nasdaq which has enjoyed six consecutive weeks of gains, and is arguably the strongest index at the moment, is looking over-extended. Its weekly Stochastic-RSI (which measures momentum and force of the trend) has now flat-lined in the overbought region. This indicates the upside is limited in the short term.
What I also pay attention to is the action on the AUDJPY (the “Aussie-Yen”) currency pair. The AUDJPY is a useful indicator of what the hedge funds are doing: a rising AUDJPY indicates the hedge funds are putting ON risk (money flowing to stocks) and a falling AUDJPY indicates they are taking OFF risk (money flowing to safety).
As the above video shows, the chart of the AUDJPY shows a bearish engulfing candlestick pattern on Friday plus divergence on the RSI (RSI failed to make a new high even though the AUDJPY made new highs). Both these signals are bearish and point towards weakness in the upward trend.
If you are long term investor, none of this will probably matter. But if you are a trader, then it may be time to start taking profits and prepare to use setups to short the market or buy put options.
Let me know what YOU think and leave me your comment below.