Both the DeMark indicators and the measures of volatility indicate that the market should bounce in the near term.
The DeMark Sequential indicators are registering a 13 buy signal on the daily NDX and NASDAQ. This is the first 13 buy signal registered since the October 2005 lows.
Source: Bloomberg
Source: Bloomberg
This daily buy signal follows the weekly 9 buy signal given last week.
Source: Bloomberg
In addition, the VIX which measures the implied volatility of stock options in the S&P 500 has reached levels that has typically marked trading bottoms. The following chart is a measure of the "volatility of volatility." It measures the standard deviation of the VIX – the left hand scale on the chart give you the standard deviation. Currently the VIX stands two standard deviations from the mean. Therefore the VIX is currently 95.4% higher than the mean VIX, indicating that the market is pricing in extreme volatility right now. This indicates one of two things to me. Either the market is 1) undergoing a change of character and reverting to a bear market, or 2) the volatility will return to the mean which would generally happen with higher stock prices. The last time volatility spiked this high was during the April-May 2004 bottom.
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Given the positive short term DeMark signals and the high volatility, the markets could stage a post-Fed relief rally no matter what the Fed decides to do.
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