Where is the U.S. Stock Market Headed?

Even though the fundamentals of the U.S. economy are in place, I believe that the U.S. stock market is in for a rocky ride due to what is happening outside of the U.S.  You see the Chinese stock market is in a major correction (See chart below).  Down close to 40% as of August 23, 2015 from it's high in June of this year.  This stock market crash is a major driver as to what is happening in the rest of the world markets, including the United States.  You see, according to the IMF, China is now the largest economy on planet earth.  So what happens in China is a very big deal and affects us.

Shanghai Stock Exchange Composite Index 

All of this has brought a lot of volatility to the U.S. stock market.  In situations like this, stock analysts' have a way of measuring how volatile the U.S. stock market is going to be in the future.  This measure is called the VIX index (See the chart below).  It measures the volatility of the S&P 500 up to 30 days out.  As you can see, it reached a peak today similar to the period in 2011 when we our government had a major squabble over the U.S. budget.  According to it's close today (August 24,2015) at 40.74, we should expect more volatility.   This compares with a close at 13.02 just a week ago.  So what the index is telling us, is that we can expect more volatility in the market in the days to come.  Whether that volatility is on the upside or on the down side.

Chicago Board Options Exchange SPX Volatility Index