Stock indices have problems overcoming recently set highs. We are talking about major US indices such as S&P 500, Dow Jones Industrial Average and Nasdaq 100, but also about German DAX. The situation is interesting enough to include in the analysis contracts for the VIX fear index, which we wrote about in the comments recently.
Looking technically at the three main US indices, it is impossible not to notice one of the possible technical formations that may lead not so much to reverse the trend as to at least a beginning of a larger correction. We are talking here about a head and shoulders pattern.
Nasdaq 100 CFD (US100 symbol on the Conotoxia trading platform)
Let's look at an example of the daily chart on the CFD on Nasdaq 100 index, where the market could finish drawing the potential left arm and head, and at the beginning of the week also the right arm within the head and shoulders pattern. The current decline, if the high is not soon broken, may indicate a desire to draw a larger correction. Such assumptions could be confirmed by breaking the uptrend line and going below 8226 points. Then also the way towards 8168 points could be opened. In the extreme scenario, the level of 7975 points might be the key support.
The situation is similar also to other indices that have problems overcoming recent highs. Investors may now be afraid of the next deadline for tariffs, which is on December 15. However, the Chinese representatives calm down saying that they want to make a deal as soon as possible.
Consequently, the contract for the VIX index increased, which is the so-called fear index. The higher its value, the greater the expected volatility over 30 days on the S&P 500 index. In turn, the higher the expected volatility, the less willingness to invest in shares and thus possible index decreases. It is worth adding here that in November net long positions on VIX contracts set a historical low. This may raise concerns about a large short squeeze and thus an increase in volatility, which may translate into a decline in indices. Among others, for this reason, it is worth observing the listed instruments, such as US500, US100 or US30, as the increase in the volatility may be highly possible.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal Opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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