An Update On The EBB
Last month on May 10th we looked at the Erlanger Big Barf (EBB) index which is a proprietary measure of the momentum of implied volatility relative to the momentum of the market. Remember the measure of implied volatility that most people know and follow is the VIX.
Extremes and divergences of the EBB are important tests of market direction. Anything above 5 is a measure of extreme upside momentum of sentiment. Such moments are not necessarily trend killers, but likely times when the market needs a breather.
Negative divergences at highs are markers for a change in market direction. A lack of divergence at highs suggests the uptrend can continue. With the recent action in the chart below, the EBB has moved has moved back above 0 just as the S&P 500 found a recent May low at 4128.95. A month later we are higher by 102 points at 4230 at 12:40 p.m. this afternoon. That is higher by 2.47%.
The next test is going to be a break above 4250 which is a key big whole number for the market. We track three EBBs - daily, weekly and monthly. All are positive and are not forecasting any trouble ahead. The only issue for market players is if they are short and that is a completely separate discussion.