Monday 14 May 2012

VIX - Volatility creeping a scary bug

The VIX closed pretty strongly today in the mid 21s. The door is open to 24, and the weekly cycle is warning of underlying momentum to much higher volatility levels. The near term trend remains up, with the weekly cycle providing strong support during any declines.

VIX, Daily, standard

Vix, weekly


One big question is whether the VIX can ever break last years peak of 49? We sure have some severely scary possible macro-economic events out there this year. Everything from the USA - (joining Japan and the EU), in recession, to Greece leaving the EU and/or Euro currency.

I've always - and still do, hold to the notion that if VIX breaks 49, we'll see VIX in the mid 60s. Today's close of 21.78 is a very long way from the 60s. That level seems impossible right now, but hey, last July so few were buying VIX calls at VIX'15, it took a mere 3 weeks to triple the VIX to the mid 40s.

More later..dealing with the daily index cycles (all bearish!)

Closing Brief

A very weak close to the day, after the 15min index cycles maxed out at 2pm (as often, it seems to be a key time of the trading day, and that is precisely when I exited Longs earlier).

VIX closed at a new high, the door remains open to 24.

Sp'60min H/S formation





A weak close, it is very difficult to know if we'll gap lower yet again tomorrow morning. I'd not feel comfortable shorting with the 15/60min cycles as they are, so I'm content to be on the sidelines. Conversely, I'd also not be comfortable holding long overnight - even from these relatively low levels. Too risky.

A lot of indicators in the market - Euro, Dollar, CRB index, Oil, macro-economic doom (Greece Euro exit?), all are bearish. Its almost pitiful, in that the only bullish aspect the bulls have to look forward to is the Facebook IPO - which I now understand will start trading this opex Friday (not Thursday).
More later, dealing with the daily cycles - which today received some confirmation of the bigger bearish picture.

3pm update - content to watch the bounce

I'm glad I got the kick/stopped out of my long-index position at 2pm. I'll sleep easier for it, and anyway, I can now focus better on where next to take the big re-short, for what I still believe will be a potentially monster wave'3.

The 15min cycle rolled over in the last hour, but the bigger (and more powerful) hourly cycle still suggest there is underlying strength for Tue-Thursday. As it is, I'm glad to be on the sidelines, this is kinda tricky to manage today. As they say 'in in doubt...stay OUT!'

Sp' daily - bearish outlook

Sp'60min H/S

With the SP' breaking 1340 (and the dow' doing the same equivalent), we have some good confirmation that the bigger bearish outlook will more than likely occur.

Right now, I am looking to re-short around 1370/75, probably this Thursday, AFTER the Facebook hysteria is out of the way.

In many ways, once we get the 'FB' listed on the NASDAQ this Thursday, the doomer-bears can come out to play...with all their toys. A move from sp'1370 to 1270 across the following 2 weeks would make for some great bearish gains

*I'm keeping an eye on the VIX which is close to making a new daily high. Hmm, that is certainly a problematic warning for those holding long overnight.

More after the close!

2pm update - can I stomach holding long overnight?

The market is still crawling upward on the important 60min chart. To hold..or not to hold (long overnight)...that IS the question. The daily MACD cycle is low, there is still significant potential of a mini-ramp to the 1370s at any point.

Best guess right now for any ramp would be 1370/75. I think even 1380s are now out of range. The key issue is that we have arguably confirmed the bigger H/S formation on the daily all that talk of sp'1270 is still on track for end May.

Sp' H/S formation

The bulls will want to see a close over the 10MA of 1349, although lately that has not been such a good indication of further gains the next day. We'll see.

*update...just got kicked from my index long, oh well, seems I won't have to decide after all.

I won't be meddling in the market any further today.

More later...the rest of the day will be interesting to watch.

1pm update - the risk is to the upside

Market appears like it has a few more hours upside in it. Certainly, anyone who was short across the weekend should have bailed by 10am.

I'm actually considering holding overnight, although it will depend on how the market reacts after 2pm. A few more stronger hours - back above the 10MA of 1350 would make me reasonably confident for further upside into Tuesday. Holding overnight is certainly not without significant risk though.

Sp'60min H/S formation -  1370/80 still viable

The chart above has been changed a little, but not too much. It is still a VERY viable formation, and I'm still going to use it as my primary formation for the rest of this week.

So, lets keep a close eye on that 60min cycle, can we go + MACD cycle tomorrow morning, and battle upward to 1370/80 - for the Facebook IPO later this week?

12pm update - moderate bounce underway

The market appears like it has put in a floor, and we'll crawl upward for the next 2-4 hours, probably at least until 2pm. The bears -those holding across multiple days have a problem in that the 60min cycle could trundle upward into Tuesday, and there is still a possibility of 1370/80 later this week. Considering that it is opex week, and we have the Facebook IPO, a latter day ramp is very much possible.

SP'60min, count'1


For me, the big issue is going to be where the VIX next floors. Will it break back below 20, or can it hold 20, and then a further surge to 24 in the next day or so?

I remain holding Long, but will certainly be looking to bail around 2pm, I do not wish to hold overnight.
Time for lunch !

11am update - Permabear...long

To my own annoyance, I went long at sp'1340 a little earlier, a move back to 1350 seems very viable later today, considering the 15min cycle.

I remain holding to all longer term targets of sp'1270, and possible low 1100s later this year. However, despite being a Permabear, I must take long positions sometimes, 'short, and keep shorting', never works out so great in the long term.



*Despite the opening jump up, VIX is looking very much like its maxed out, it could easily fall back below 20 late today.

I will look to close my current single long index position in a few hours probably. I sure would not wish to hold long - or short, overnight.

More later!

10am update - its a bit of a mess out there

SP' breaks the big 1340 level - confirming the larger daily H/S formation, and also breaking the low from early March. The VIX is testing the recent 21.50 high, a move to 24 is very viable - which would suggest sp'1325/10 within the next day or so.

Sp'daily - bearish

SP'60min - revised, count'2

I am really not happy with this count - yet it was predicted by a number of chartists this past weekend, and this morning appears to have confirmed their outlook. This would make us in micro-wave'3...then a 4, and a 5' - probably within a day or two, and then UP UP UP - that's what some are saying, 'new highs of 1450/60' by mid/late June. Provoking huh?

*the vix is putting in black candles on the smaller cycles, suggesting a floor within the next hour at this sp'1340 zone.

I am considering taking a day-trade long, even though it sickens my stomach. Urghh. What is clear, there is no point taking new shorts at these levels.
More later

Pre-Market Brief

Futures broke a new low in overnight trading, around -15, the equivalent of sp'1338/39 earlier, so...this is a pretty bearish open. Anyone who bravely went long near the Friday close is going to be pretty annoyed this morning.

If we are -15 by late morning, the outlook will look quite bad. However, there are some out there who were looking at this wave'2 as actually as minor'4 of 1' - in which case this would be a fifth lower..and soon a floor. Those same people then looking for new highs in June. I find that hard to agree with.


I'm not sure what I'm going to do now with this mornings open. I guess I'll sit out today, going long after breaking a new low is not a great idea, and chasing the market lower this morning seems equally stupid, at least until both the 15/60min cycles are at higher levels.

*I suppose we might not break a new low by the time the market opens in normal trading hours, but, I'd still consider the ES new low as important.
Good wishes for Monday..and the week ahead.

More across the day.