Twisty Tuesday – Markets Gyrate Wildly While VIX Stays Low

What a ridiculous market.  

We're right back where we were on April 29th (2,060 on the S&P), which is still 2% below the 2,100 line while 3% (2,040) seems to be holding up well so we're consolidating at – you guessed it – the 2.5% line (2,050).  This is right where our 5% Rule™ expects us to be and we haven't broken down yet – but that doesn't mean we're not going to, so we're still loving our hedges, which are keeping our portfolios fairly neutral in all this chop

Similarly, the DAX fell from 10,500 to 9,800, which is -6.66% (thanks Lloyd!) and, as we know from the 5% Rule™, that's an overshoot and we expect a 20% (150 points) weak bounce  to 10,650 or a 40% (300 points) strong bounce to 10,100 and we're not going to be impressed by the "recovery" until the 10,100 line is held for more than a day and a rejection at 10,100 would be a bad sign:

See, isn't that easy?  The Must Hold line on the Dax is 11,000 (same as the NYSE) so 10,450 is the true 5% drop so we're really not impressed, in the bigger picture, until the DAX is over 10,500 so 10,100 should be EASY to pop back over if they are really on the way back to 10,500 and, if the DAX can't get back to it's -5% line, why would we be bullish on the S&P where 5% off the top (2,100) is 1,995 when it's already over that?

TA should follow your bullish investing premise, in the very least.  The bullish story is that the US is recovering (it is, slowly) and Europe is recovering and Asia will muddle through but if Europe's top index is 5% below it's Must Hold line (2,050 is 11% over the S&P's Must Hold at 1,850), how is the S&P going to justify being 20% higher than our German cousins?  Don't we all pretty much sell our goods and services on the same planet?

Amazingly, for all these wild market swings, volatility is very low – almost half of where it was in February, when the S&P tested our Must Hold line at
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