Saturday 21 April 2012

Volatility set to jump

It would appear that even under a mid-term bullish market outlook, the VIX should still jump to the mid 20s this coming week. The ultimate issue is can VIX break into the high 20s, which may confirm - along with the index monthly cycle, that the market is indeed starting to change its broader trend.

VIX 60min

Near term intra-day action from Friday, still held within a larger multi-week bull flag. We need a clear break over 21 to confirm the flag...and then next target is 24.

VIX, daily

Daily cycle shows the bull flag..and the 24 target/resistance level. The MACD (blue bar histogram) is still cycling lower though, the trend IS admittedly down.

VIX, weekly

The huge down trend since the last Aug' peak of 48 is indeed over. So far, we have just a 5 week moderate rally from the 14 floor. Upper bollinger allows VIX'25 - and that is one valid reason why mid 20s are easily viable in the week ahead.

VIX - bearish market scenario

This is arguably a doomster chart, and so it is to be considered with a high degree of caution. Only SP'1300..or more likely 1270/50 would get VIX back above 30.

VIX - bullish market scenario

Right now, this chart seems the most balanced outlook in the very near term. A bounce to 24, and then another relentless slide lower into May/June.


The coming week will be an important one. The bear flags on the daily index cycles are surely going to be confirmed, and we should hit sp'1340, if not 1300 within 5-9 trading days. Yet, even if we do get down to that level, the VIX could easily get stuck in the 24-28 range.

Bears still need to be very careful in the weeks ahead, we still have the Facebook IPO, and we all know the Bernanke will be wanting to give asset prices another major kick - commodities ARE very weak, and with employment gains still moderate, he does have some valid excuses to do so.

So...look for VIX to break 21 early this week, and then to hit 24. There IS a fair bit of 'omg, we're going to flash crash' chatter out there again right now. It is from people of very different perspectives, so that is interesting in itself. Yet, we are barely 40pts from the sp'1422 peak, so the bears really can't get too bold yet.

What matters most of all, will be the size and speed, of the market declines. Anything in the range of dow -125/175 is just minor noise. The doomer bears will need to see at least one day where the dow is -275/325. Only that amount of decline would be suggestive of a mid-term break under sp'1300.

Good wishes

Something to lead into the weekend

Tis late, but I wanted to throw one final chart out there for this trading week...

Dow', weekly

The Dow weekly is 100% bearish for next week.

Target... 12200.

Yeah...800 points lower.. 'sometime' during next week.

Its something to aim for, and having an aim...well, isn't that a good thing?