The first two charts below are same period weekly charts of the Nasdaq 100 to Nasdaq 100 Volatility Index and the Nasdaq 100. Over time, the Nasdaq 100 will rise, while its Volatility Index will trade in a range. So, the ratio will rise over time. Also, there's generally a negative correlation between the Nasdaq 100 and its Volatility Index, i.e. when the Nasdaq 100 rises (or falls), its Volatility Index will fall (or rise). Currently, the ratio suggests either an end to the cyclical bull market or a severe correction to increase volatility sometime next year.

Over the final year of the 18-year structural bull market, in 1999-00, the ratio rose and stayed above 50, which was well above the 100-week MA (blue line), and climbed to over 80. At that time, the Nasdaq was in a mega-bubble. However, a structural bear market started in 2000 (the previous structural bear market was from 1965-82) and in 2002, the Nasdaq began a cyclical bull market. Currently, the ratio is extreme enough, in the 120s, to indicate more potential Nasdaq downside than upside within the next six months, and that the bull market may be about over.

The catalyst for the end of the bull market may be rising long-bond yields, which may cause a contraction in the housing market. Consequently, consumption growth would slow, perhaps enough to slow GDP growth substantially, while mortgage defaults would rise. However, over the second half of December, instutitions may keep the market high for end-of-the-year window dressing. Nonetheless, volatility may also pick-up, because of uncertainty about the strength of the holiday sales season. Moreover, economic data and oil prices should contribute to volatility.

Monthly and quarterly economic reports next week are: Monday--None, Tuesday--PPI, Building Permits, and Housing Starts, Wednesday--Revised GDP and GDP Price Deflator, Thursday--Personal Income, Personal Spending, and Leading Indicators, Friday--New Home Sales, and Revised Michigan Consumer Sentiment. Also, weekly data are: Tuesday--Retail Sales, Wednesday--Oil Inventories, and Thursday--Unemployment Claims. Financial markets will be closed a week from Monday, December 26th, for the Christmas holiday.

The third chart is an SPX weekly chart, which also suggests the market is near a top. There are three major resistance levels around 1,280, i.e. the weekly upper Bollinger Band, the monthly upper Bollinger Band (not shown), and the upper line of the rising wedge. These levels work together to provide stronger resistance. A key support level is the 20-day MA, currently at about 1,262, and rising, which SPX rose above and held throughout the two-month rally. Also, the previous four-year high at 1,246 is major support.

Charts available at www.PeakTrader.com Forum Index Market Overview section.