Now take a look at the MACD. It is by far and away the highest it's been in the last 10 years. Can it go higher? Sure. But honestly by how much? The full stochastics and RSI are saying the same thing. Both are registering at the highest levels they've been in the last 10 years. The full stochastics, which measures momentum and can only read between 0 and 100, is sitting at 98.65. There is literally only 1.35 left for it to move higher, which, conversely, means that there is 98.65 available for it to fall. While the Qs have been nothing but strength these last five years, the long-term indicators are flashing some serious warning signs.
Multi-year support is shown by the green line. Each time RUT touched the line, as indicated by the red arrows, the index jumped higher. But something interesting has happened of late. After it touched the line in May, it tried to leap higher like it had done in the past. This time, however, the rally sputtered after only 6-7 weeks. After making a new all-time in late June by just the slightest of margins, it reversed lower and today is sitting right on that line once again.
Relative strength and MACD are flashing warning signals here as well. After topping in late 2013, its RSI has made a series of lower highs and lower lows. Same goes for the MACD. As of today, the RSI is sitting right on its mid-line and the MACD is threatening a bearish cross.
As the RUT is sitting on multi-year support in the form of its 50 week moving average AND the multi-year trend line, expect to see bulls really defend this area. Given the weakness displayed by the MACD and RSI, however, the bears might be gaining the upper hand.
A couple things jump out at me when looking at this chart. First, we're sitting on MAJOR long-term support in the 10-12 neighborhood. In the last 25 years, the VIX has only touched this area on a few occasions, after which a prolonged period of market volatility followed. Second, the MACD bottomed in 2011. While the VIX itself has continued to fall, the MACD has been making higher lows as indicated by the green trend line. This is an important non-confirmation.
The VIX will often swing wildly on a day-to-day basis, but taking a longer-term view smooths out many of the gyrations and allows you to see bigger trends at play. With this in mind, I have to ask the question: How much lower can the VIX really go? It would have to overcome immense pressure to penetrate below that green line for any extended period of time. In my opinion, the path of least resistance is now upwards.
The markets have been undeniably strong for the past five years. However, using the various tools that technical analysis offers, we can see that major changes are brewing. Each of the indices shown above are stretched to their long-term maximum/minimum. There is no more room to continue moving in the current direction. At the very least, I would expect the markets to start moving sideways from here, with a high probability of a correction (and perhaps a significant one at that) over the coming months & years.