Chart of the Day – Thursday, May 23, 2024

Sell in May and Go Away? pic.twitter.com/Pr7JkYlqpJ

— Jeffrey W. Huge, CMT (@Alpha_Insights) May 23, 2024

Today’s Chart of the Day was shared by Jeff Huge (@Alpha_Insights).

• The S&P 500 ($SPX) engulfed the prior six sessions today, falling -0.75%. This bearish engulfing candle will be confirmed if $SPX continues lower tomorrow.  On a brighter note, the index is still above its March highs.

• In addition to this bearish reversal candle, Jeff highlights a bearish divergence between the Volatility Index ($VIX) and the Volatility of the Volatility Index ($VVIX).

• This divergence is bullish for volatility in the near term and, therefore, bearish for the stock market. The $VVIX was also diverging like this before the Covid crash and other meaningful sell-offs.

The takeaway: The S&P 500 formed a bearish engulfing candle today after an ugly reversal. Meanwhile, the $VIX and $VVIX have formed a bearish divergence over the past three weeks. This is certainly a red flag in the near term, but there’s no reason to panic until $SPX violates the March highs.