Monday 21 May 2012

VIX - market volatility turning lower

With the market seemingly having floored around the secondary support of sp'1292, the VIX is now getting smashed lower - losing 12% today. Lets look at those VIX charts!


VIX, daily, bullish outlook

VIX, daily, bearish outlook

VIX, weekly


The 60min cycle remains in the broad up trend, market index-bulls will need to see VIX break under 22 by the Wednesday close - which seems very likely. It has been especially pleasing to see the VIX get into the target yellow box/zone.

The two daily charts I believe are a fairly good balance between what appears to be a general summer decline for the market indexes..and yet what is a very likely near term pull back for the VIX. Whether the market can briefly make new highs in June/July, we'll just have to wait and see of course.

Regardless, the VIX weekly cycle is now looking toppy, and is possibly going to retrace lower for 4-6 weeks. Market bulls will wish to see the VIX close this week under the 10MA of 18.65.

Closing Brief

A strong close today, the first decent 'rally into the close' we have seen in around four weeks. The big decline in the VIX was good confirmation for today's rally. Lets take a quick overview of the main index hourly cycles

IWM (representing Rus'2000 small cap)




We remain in the down channel on ALL indexes. The broad trend is still currently downward. However, today's action - when you consider the daily and weekly charts, is very suggestive of a multi-day bounce/rally.

It will be very important for the bulls to close tomorrow either flat..or marginally higher. Strong follow through of 0.75/1.0% would be very significant, and would open the door to a swift move to 1340...and more likely 1370/80 sometime next week.

More later..dealing with the VIX, those daily cycles..and the bigger bearish outlook

3pm update - finally..a rally into the close?

Market holding the gains, it does look like we have a baby bull flag on the hourly index cycles. The size of the VIX decline is reasonable confirmation of today's rally.

Something to consider.....

SP, daily, bullish outlook

*The daily 10MA @ 1333 will of course be the next key MA to break...and then the old primary support level of 1340.
The above is a very simple chart, but the point stands, secondary support held, and if what we had was an ABC move lower, then we're now going new highs. This is of course sheer heresy to those Permabears still holding short - many of whom are talking about an imminent one-day crash.

If the market does break out and above the down channel tomorrow/Wednesday, this outlook will become important to regularly refer to.

So, after 3 weeks of falling into the close...lets see if we can hold the gains..and maybe even close at the high of the day. That would make for one bonus bullish signal to conclude today.

More after the close.

2pm update - baby bull flag?

Market still holding up well - arguably the best 4 trading hours since May 1'st - when the dow was peaking, around 850pts higher!


It sure looks like a baby bull flag to me. The hourly 10MA @12425 will be prime support here, and the bulls should really look for a close above it.

More later!

1pm update - index gains...building

Market definitely appears to be confirming it is going to make an attempt to break out of the down channel tomorrow.

I'll probably discuss the following some more later this evening..

Sp'weekly, count'1 idea

If this count is correct, then the wave'5 up should react to some extent the same as the wave'3 up did - a bullish engulfing candle to close this week above sp'1352.  Right now, that is a clear 41 points still higher, on top of the current +16. That would be one scary candle for the bears, and it would set up a disturbing few weeks higher.

*Its possible we could get a truncated fifth wave though, maybe putting in a slightly lower higher, sub 1422. The monthly chart would especially suggest this is a likely outcome.

Meanwhile...back in the main market....


The Rus'2000 index is really powering higher today - along with the Transports. We're putting in a bit of a spike right now, but that's due to the 15min cycle which is maxed out.

Both the R2k and the Tranny are key leaders in this market, and are suggesting today is indeed a turn day..and the start of a major move higher. Whether we get stuck at sp'1340, 1380...or keep going...we'll just have to see.

Regardless, its clear right now....only those bears with short-stops at the top of the down channel should still be still holding short The rest of them...should have bailed at the open.

12pm update - holding the far

Those bears looking for a Monday collapse sure will be annoyed now. The VIX is getting smashed lower by around 10%, and the early moderate index gains are solidifying to around 0.75/1.0%.

All things considered, so far today is good turn day. Yet we are still very much in the down channel on all indexes. Only with a break above and outside the channel can we even say we've stopped this 13 day down cycle.




Bulls need a close over dow 12550 to confirm an initial break. I don't believe we'll get that today though, but its certainly viable tomorrow morning on an overnight gap - if Asia has follow through to the upside.

*I remain long (underwater from sp'1334), first target remains at least a back test of the old support level of 1340. Considering how deeply low the daily cycles are, we could certainly reach that target later this week.

11am update - market trying to break upward

We are still very much in the down channel, however today really have the first real sign of underlying sustained strength in over 2 weeks.

A quick look at the daily cycle cycle charts (rainbow style) puts things into perspective...

Dow, daily, rainbow (elder impulse)

VIX' daily, rainbow

Both charts are suggestive of a turn, but...we need a close around current levels..if not better, and good follow through both tomorrow and Wednesday.

Something I mentioned for much of last week , 'look for black doom candle' on Facebook..well we had that, and today's significant morning drop confirms once again..the power and important of the black candles! They are often good warnings, along with their counterparts - the hollow red (reversal) candles...

FB, daily - a kooky, but fun chart

Stay tuned!

10am update - early morning Facebook hilarity

We're off to a pretty hilarious start so far. The hysteria has turned into horror for Facebook. The custom FB PPT seem completely absent so far today. The $35 level failed..with a major snap...

So much for buying an IPO with a PE of 100. Idiots !

FB, 1min

*Fair value remains $4

Meanwhile the main market is marginally higher. From a MACD cycle perspective we could go + cycle in the next 2-4 hours. That might be the key to set up a multi-day bounce as the week goes on.


More across the day

Pre-Market Brief

Good morning. Sp' futures are +6pts, taking the market from around 1295 to 1301. Not exactly a massive 'breakout', but it could be the very early start of a new up wave. After 13 days lower, we ARE due an up cycle on any historic basis.

*next Monday the US market is closed, so..there will be holiday 'issues' once we get into late Thursday.



Sp' upper channel by the end of today will be 1325. I don't believe we can close over that today. Frankly, considering the mood in the market lately, a gain of 10pts to around 1305 or even 1310 would be a major victory for the bulls.

More importantly, by the end of Tuesday, the upper channel boundary will be 1320, I believe that will probably be broken above either late tomorrow or Wednesday. That should in theory set up a few further days to at least 1340 - a key support (now resistance) level. If 1340 can be broken through, then 1370/80 will be the next level. Anyway, that is likely at least a fair few days away, lets first see how today proceeds!

Good wishes for the trading week ahead

8.26am ..hey, take a look at FB. Either their custom PPT is still not out of bed yet, or they aren't going to prop up the price either pre-market..or maybe...anymore at all?

FB  37.15 -1.08 (-2%)   - not exactly the best start after just 1 trading day.

SPY/VIX - approaching first main target

The SPY/VIX ratio is approaching the first main target level.


SPY/VIX, 10yr

SPY/VIX, 3yr


The H/S formation - as seen best on the 10yr chart, remains an interesting chart. It would of course match up - and support the 'giant H/S formation' as I've suggested via the various monthly cycle index charts.

The SPY/VIX 3 year chart is approaching the 5.0 level. I realise the implications of such ratio levels, however, the 5.0 level has been a key level in the past few years. Will we get a significant bounce here, and put in a lower high in late May/early June?

The 1 year chart shows a clear rollover. Is this wave down a wave'4 ?  - see the recent posting for the Sp'500 weekly count theory.

*Futures are broadly flat right now, although we've seen some regular overnight 1% swings by the open.

We have another week of market nonsense ahead, it will be particularly interesting to see if the Facebook PPT can keep the stock above $38 this Monday - or even the whole week?

Goodnight...and good wishes for the week ahead.