Market Perspective and Context
Fear of Coronavirus has the market in panic mode to the downside. A loss of approximately 6-7% off the indexes in the last two trading days off recent all time market highs. Certainly reasonable to expect the market to come in a bit, the market just needed an excuse to regress. Corona fits the bill.
Charting the VIX with the RSI (Relative Strength Index) going back 10 years on a Weekly interval this move down correlates with the RSI moving above the 70 level (a value associated with an Overbought condition). In the last 10 years, again on a Weekly interval, the VIX RSI has breached above the 70 level a total of 6 weeks. Yesterday marked the seventh time VIX RSI has reached over the 70 level, again on the Weekly interval. In all instances prior over the last 10 years, SPX moved incrementally higher from the lows produced from selloffs characterized by VIX RSI moving above 70, with 79 occurring once back in 2010.
Coupling the VIX RSI over 70 with an SPX RSI reading near 30 (Oversold) or lower is a setup for a profitable LONG entry into the SPX. Note, the VIX RSI, while a measure of volatility, will not correlate exactly in an inverse relationship with SPX RSI. For example, if the VIX RSI is at 70 it doesn't mean the SPX RSI will be at 30. However, the VIX RSI will be higher or lower than the SPX RSI most of the time.
The 9 and 20 day EMA support levels have been broken and the 40 day SMA is approaching at 3094. The 50 day SMA support stands at 3028, which coincides with price support for 2 weeks in October/2019.
So what am I looking for in order to incept a LONG position on the SPX? The markets didn't come this far down to reverse course in a V, or Parabolic manner, in my opinion. I will be looking for further selling down to the 3028 SPX level, where there is support on the 50 day SMA as well as a 2 week price structure in that range from October/2019. I will be sitting on my hands until then, as far as trading to the LONG side.