SKEW and more...

Most traders are familiar with the VIX, the VIX tries to estimamte the probablitiy of a market related move either up or down. The VIX is sometimes called the Fear Index. The idea is that a high level of fear represented by a high VIX reading usualy marks a market bottom and a low level reading on the VIX implies investor omplacency and is associated with market top. Here's today's VIX...

 The VIX closed today at 19.88, the lowest close since July 25 2010 at 19.35.

Here's the VIX with the S&P overlaid...

From that date, the SP-500 declined 17% in 12 days.

While the VIX attempts to measure the probability of a market event, the SKEW Index attempts to measure the probability of improbable events or Black Swans/Market Crashes.

I first mentioned the SKEW Index on Sunday. The index itself had not reached an alarming level, but the Rate of Change (ROC) in the index had certainly caught my attention, this is what the SKEW Index looked like on Sunday...

 As of last Friday's close, SKEW was elevated above the historical average of 115 at 121.92, but not alarming so, as mentioned, it was the rate of change that aught my attention. Three market days later, this is what the SKEW looks like as of today..

Today SKEW closed at 130.78 and as you can see, probably the sharpest ascent the Index has seen since being introduced by the CBOE.  A reading of 100 indicates almost a zero probability of a Black Swan event, the higher SKEW moves, the greater the probability of tail risk, or a Black Swan event.

As for today's Price / Volume relationships... Yesterday in this post I explained the importance of this little followed metric. Last night I said this about yesterday's Dominant P/V relationship:

"Close Up and Volume Down is the most bearish relationship and also our dominant relationship today. When we see this relationship, it suggests the market is being manipulated higher by using heavily weighted stocks within an index to move the index higher, however, the majority of stocks are rising on falling volume meaning that traders are not willing to chase prices higher enthusiastically. This relationship is often seen near or at a reversal and in my experience many times the market closes lower the next day. A string of these relationships within an uptrend is very bearish as well."


Here are the P/V relationships for the major averages today.

All Stocks in the data base (these do not include penny stocks, pink sheets or OTCs).

Once again today, the dominant P/V relationship is Close Up and Volume Down, the most bearish of the 4 relationships.

Dow-30

Again today, nearly half of the Dow 30 closed at the same bearish relationship.

NASDAQ-100

We see the same dominant relationship in the NDX, over half of the components.

Russell 2000

 Today in the Russell, Close Up and Volume Down was the strongest relationship, but not what I would call dominant. The co-dominant relationship was Close Down and Volume Down, telling us that fewer stocks are closing up in the Russell 200

Russell 3000

The dominant P/V relationship was the most bearish, Close Up and Volume Down.


SP-500

And again today, nearly half of the S&P-500 came in at the bearish Close Up and Volume Down.


Forgetting 3C, ES, SKEW, VIX and the P/V relationships, I mentioned a couple of times today that optically, this market looks very dangerous here.

This is what I mean...

This is clearly an ascending wedge, it's also a bearish price pattern, trade has become thin. It looks reminiscent of 2008 in more then one way (I'm talking about the preceding trend)...

Throw in the other factors I excluded and it appears even more dangerous. The wedge in 2008 lasted about a month longer, but it's relative to the size of the preceding trend and top.