Volatility Continues

By Colin Twiggs
April 27, 2017 4:00 p.m. EDT (6:00 a.m. AEST)

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The S&P 500 is forming a bearish descending triangle with a base at 2550. Twiggs Volatility remains elevated, in the amber zone between 1% and 2%. Another rally to test resistance at 2800/2850 is likely and the key for me will be the behavior of the Volatility Index over this period. A fall below 1.0% would indicate normal business has resumed, but a trough that respects the 1.0% line, as in late 2015, would warn that risk remains elevated and more downside is likely to follow. While 2016 is not exactly a market crash, I believe that the down-turn would have been a lot worse if not for large stock buybacks by major corporations, supporting their stock prices.

S&P 500 and Twiggs Volatility

Today's Ishares chart (IVV) shows the index bottoming out from a strong secondary correction, with Twiggs Money Flow respecting the zero line.

S&P 500

The Nasdaq 100 is slightly weaker with Twiggs Money Flow (on QQQ) forming a trough at the zero line.

Nasdaq 100

Market leader Amazon (AMZN) has formed a healthy trough above zero, signaling strong buying support. Earnings reported for Q1 2018 were an impressive $3.27 EPS, with 51,042 revenue compared to Wall Street consensus estimates of $1.22 and 50,175 respectively.

Amazon (AMZN)

Microsoft (MSFT) was more modest at $0.95 and 26,819 compared to Wall Street's $0.85 and 25,706.

Microsoft (MSFT)

Alphabet (GOOGL) also impressed, with earnings of $9.93 and revenue of 24,858 compared to Wall Street estimates of $9.21 and 24,288, but the stock is still suffering from "Facebook fallout."

Alphabet (GOOGL)

It is unlikely that the market will capitulate when presented with such strong earnings. But not impossible.

The stock market remains an exceptionally efficient mechanism for the transfer of wealth from the impatient to the patient.

~ Warren Buffett

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Disclaimer

Colin Twiggs is director of The Patient Investor Pty Ltd, an Authorised Representative (no. 1256439) of MoneySherpa Pty Limited which holds Australian Financial Services Licence No. 451289.

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