No immediate crash to come.....yet

As you must know by now, I've been very bearish for the overall market for quite some time and I even advised "Get out" very recently when S&P was a bit over 1900. Nothing has changed about my general view of the market and I'm still very much convinced that S&P has a lot downside to go and will likely touch 1600 at some point! Having said, be aware this is not a short term target and by no means I'd have thought this would be a straight line down to reach that level in just a few weeks. Instead, we will see a lot of ups and downs with intensive volatility during the process. At the moment, I have to say that the market is likely heading up in the next 1-2 months. Why so? Well, look at the chart below: since the last crash in Aug 2015, now it is the first time that we are seeing a clear MACD positive divergence when S&P was testing new low a few days ago. With the significant depressing sentiment prevailing at the moment, this is clearly a contrarian indicator suggesting the market may go more likely up than down for a few weeks. Another supporting evidence is coming from the volatility index, VIX. If you look at the VIX options for March and April, its put options are about 30-40% higher than its calls, suggesting traders are expecting a lower VIX in the next couple of months. A lower VIX is usually associated with a higher stock market. However, ever though S&P may likely go up, it won't be a roaring rally and I don't believe it will go too much higher, maybe up to around1900 to 1950. After that, a more severe crash should ensue, especially when people become more euphoric with an upbeat sentiment!


Having said that, don't be surprised to see further weakness of S&P in the next few days towards 1800 before a more sustainable 1-2 months rebound starts.