In case you didn't know, the last few days have been rough on the market. We ended last week on a bearish note, and this week didn't start off any better. A handful of tech earnings announcements were less than bullish, and even when earnings seemed good, the market interpreted the information as a 'glass half full'.

But as bad as it's been here, it's been even worse in Japan. Over the last two days, the NIKKEI fell by almost 5%. In fact, Wednesday's 3% slide for the NIKKEI could have been a lot worse, if trading breakers had not halted trading early that day. Was there an implication for domestic (U.S.) markets?

Some headlines have implied (or stated outright) that U.S. stocks were sinking because of the NIKKEI's demise. I don't want to deny that the Japanese market probably inspired some selling in the United States, but I have to question the cause-effect that's being assigned here. And more than that, I urge all of you to question the media's cause-effect relationships that we usually just accept. Was the NIKKEI's loss the real reason most markets went into the red? Or, was there a more subtle indication that this was on the way before the NIKKEI got hammered. As you may suspect from today's title, we're going to argue that there's far more to the story......there were subtle hints that warned us of this correction before there was any 'news' to explain it.

First, a timeline may be in order. U.S. markets were closed on Monday (although most other global markets weren't). The NIKKEI started its slide on Tuesday.....before our indices did the same. But, was the NIKKEI's dip contagious? Actually, we saw clues of this impending weakness a few days before the NIKKEI (or the Dow, or the NASDAQ) started to deteriorate. They were subtle clues, but they were still there. One of the key ones came to light on January 12th (last Wednesday). That was the day after the S&P 500 hit new highs. On Thursday - the day after - the New York Stock Exchange saw a much higher degree of declining volume than advancing volume. The two pieces of data are plotted on the bottom half of the chart below. But wait a second! Aren't new highs supposed to be bullish? Yes, allegedly. But they certainly weren't this time. Last Thursday's bar said the same thing, when we gave back all of Wednesday's gain, and more. We might have even given the bulls the benefit of the doubt on that Thursday, but there just wasn't something quite right about the advancing volume/declining volume data on that Thursday - it should have been the other way around. In fact, during the S&P 500's run up to new highs, we saw a strange increase in selling volume (red), and an equally strange decrease in buying volume (green). Obviously that's a problem for domestic stocks, but it was a problem well before the NIKKEI's woes began. Wouldn't it have been nice to know that the market's rally was a little flimsy beforehand?

S&P 500 with NYSE advancing/declining volume - Daily

Another similar clue came when we saw the CBOE Volatility Index (VIX) trend higher off of extreme lows. Normally the market and the VIX move in opposite directions. But, over the last three days of last week, the VIX just kept closing higher regardless of what the market did. For instance, the S&P closed higher on the 11th (the 'new high' day) and 13th, while the VIX closed higher on the 11th, 12th, and 13th. Generally, you'd only expect to see the VIX close higher on the 12th......the day the market moved lower.

So what? Well, this is essentially a case where traders were doing one thing, and saying another. The gains on the 11th and 13th said that the market was in a buying mode. But, the fact that the VIX was also on the rise tells us that traders were also buying more bearish put options, and fewer bullish call options. Those two forces are at odds with each other, which means one of them would have to buckle soon. It turns out that the market crumbled, and the VIX continued higher. Was it a subtle sign? You bet - about as subtle as any signal could be. But any sign that shows you the undertone of the market like that is a sign well worth watching. Take a look at the chart, then read below for our final thoughts.

S&P 500 with CBOE Volatility Index (VIX) - Daily

Could those pieces of data be considered a symptom instead of the cause? Sure, you could make that argument. But we'd argue more fervently that it's better to have a predictive 'symptom' than a reactive 'cause'. By the time you heard the news about the NIKKEI, it was too late to do anything about it in the United States (or wherever you are). At least with the advance/decline data and VIX readings in hand, you had a clue about U.S. stocks before they began what has turned out to be a huge selloff. In fact, we'd rather not even define our data as 'symptoms' or 'causes'. That terminology implies that there is only one factor that affects markets, which of course, is untrue. We just simply refer to the VIX and advance/decline information as data which helps us make a decision about a future outcome. Or in simpler terms, they are the key ingredients in calculating the odds.

So how come all the newspapers, TV, and websites touted the NIKKEI's woes as the catalyst for the proverbial brick wall domestic stocks hit? Great question. We'll offer a couple of reasons. First, there really aren't that many people writing news. Most of your sources for news are actually copying and reprinting/rebroadcasting someone else's news. So, when you see a moderately big story like that, by the time it gets recirculated several times, it seems like a huge issue.

The second reason - that kind of headline makes for good news/entertainment. Be realistic here - do you really think MSNBC or the Wall Street Journal is going to focus on a headline like "Stocks Fall Because Advancing Volume Doesn't Make Sense In Relation To New Highs"? Aside from being boring, it's also complicated....which is a journalistic no-no. The "NIKKEI's Tumble Pulls Down U.S. Markets" headline is much more sensationalistic, and it's easy to discuss. Keep in mind the story doesn't have to be fully accurate or meaningful; it just has to make sense - at least in a superficial way. Unfortunately, that NIKKEI story didn't actually do American traders any good....it was all after the fact. But, it was a heck of a headline.

The point is, the best (and most accurate) signals are rarely the ones highlighted in the media. In fact, the best ones may even be downright boring. But, we'll take a boring and accurate sign any day of the week. Be sure to keep a constant watch over the tools that you know to be predictive, no matter how subtle they may be.

Price Headley is the founder and chief analyst of BigTrends.com.