US stock market continues to be very strong because any withdrawal remains shallow and is quickly reached by buying the application. The current movement of increase was now intact for almost two months now (since mid-December 2011) without any major interruption. The market is overbought and vigilant but these concepts do not mean the market will be removed. So, how we can recognize that the market is close to a high or was a?
More important to look at, of course, is the price. As long as there is a series of highest peaks and lowest cards daily and hourly main indices of shares, the trend is higher and must be respected. But can derive more knowledge if they take a blow of eye in two other important factors:
() The tendency of the VIX (volatility) index. Usually the VIX is lower that the market is moving trend. Then with the approach of top, VIX began to be more volatile. For example, VIX suddenly passed last week (first commercial full week of February) 16-21. But generally the first rise of VIX is not the time where reverses the trend of prices. What can we expect to see, is another lower VIX to its most recent lows (about 16) and only the second or the third highest attempt will be accompanied by a reversal of trend in the stock. You can see the dynamics of VIX between May and July 2011 for the direction of what we can expect here.
() The second thing to look at is the stock participation in the rally that it is coming to its end. The rally exhausts itself, it is logical to expect less and less of stocks and sectors to participate. Thus, it is important to pay attention every week to the tendency of some important stocks and major ETFs of the industry (or the same country international ETFs) indices. Once you begin to see more stocks and ETFs short sale candidates as the advance of the main index, this means that the rally is in its final stages.
The current market, I'm beginning to see signs of weakening but a top of page is not there yet. I think that we need to see at least a drop more before a high VIX can be done. Indeed, the market should become low internal (i.e. less and less than stocks participated in advance) before can reverse the trend.
Alexander Nikolov has more than 12 years of experience in the field of technical analysis and is one of the technical analyst more renamed to Bulgaria. He is the founder and editor of http://www.trendrecognition.com/
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