Implied Vol Skew Charts suggest Equities to fall

Guest post by Macro Story,

Skew VS SPX

Very interesting price action in the skew versus SPX on Wednesday. The skew trended lower while the SPX trended higher causing the prior divergence to grow even larger. This certainly brings into question the validity of the recent equity rally and implies a high probability of a decent market selloff in the coming days.

Skew Vix Divergence VS SPX

Although less reliable from a day to day indicator of price action the move lower in the divergence certainly does not confirm the recent rally in equities. To be fair the divergence has lagged at times. Still it does appear to be breaking lower and needs to be given some merit.