Wednesday 26 September 2012

Volatility jumps again

With the indexes showing some further moderate weakness, the VIX confirmed the market concerns and closed higher by around 9%, to close in the high 16s.


VIX, daily


It looks like 18.50/19.00 is a valid target for Thursday, along with sp'1420.

However, that could easily be it for this down cycle from sp'1474, and my best guess is that it will be.

Seeking an exit at sp'1420, with VIX 18/19, early Thursday

Closing Brief

A somewhat bearish end to the day, we closed within what is probably a bear flag on the sp'500. The VIX climbing 9%, again confirming the overall trend.

IWM, 60min




An hour of churn to close the day, not exactly exciting, but its fine.

Seeking 1420 tomorrow..and an exit.

More later (as ever)

3pm update - closing hour churn, or snap lower?

Everything is looking good for the bears, at least into tomorrow.

It looks like we have a clear bear flag on the hourly cycle, a close <1430 would be a bonus closing level, its certainly not necessary.




Its looking okay, a little bounce, some churn, and now the only issue is when do we break lower again.

From a bigger perspective, these moves are mere noise. Primary monthly trend remains UP, but the weekly is rolling over, the only issue is where it floors - 1420/00, or does it keep on going. Right now, I'm guessing we do indeed floor around the low 1420s tomorrow.

I remain short, seeking an exit @ 1420.

More after the close

2pm update - rainbow trends still bearish

The intra-day bounce is probably largely complete, with a move from 1430 to 1439.

The rainbow trends remain unchanged, with the.VIX higher and indexes lower.

Target remains sp'1420, with VIX 18.50/19.00


sp'daily, rainbow

vix'daily, rainbow.


The bounce will have spooked the weaker bears, but thats okay. Volatility remains very low, and even a move to the 18/19 range really doesn't get me overly excited for next week.

I find it very unlikely we can break 1420 this cycle.

As I keep saying, rather than look for a break of the recent low, bears should look for a lower high in the next up cycle - and that may take until mid-October to max out.

*special note, my second 'October red flag' Oil < currently achieved. Along with the transports, thats two major red flags. However, how we close the week/month is what matters.

back at 3pm

12pm update - intra day bounce

We're probably just seeing what is an overdue bounce, the daily trend remains downward, and the target by the Friday close is still sp'1420.

*there is a lot of econ-data both tomorrow and Friday, so there is great potential for some more dynamic market moves. There is a 'small' chance 1420 - the trend from the June low could be broken.



VIX, daily


The daily trend remains bearish, and a hit of 1420 tomorrow looks very viable.

I suppose the bears could pray for an overnight gap UNDER 1420, in which case we move into semi-twilight zone territory. A challenge of the important 1397 low would then on offer.

VIX was +10% earlier, its cooled off, but the daily trend still looks good. 18s look viable. I would be very surprised if 20 is hit by the Friday close.

I remain short, seeking an exit of 1420.

Time for lunch

10am update - cycle target is 1420

Good morning. Futures were surprisingly muted overnight, and the bulls failed to even get a little ramp at the open. The opening declines are important, we've a good break under sp'1440.

Next target is soft support at 1435 - unlikely to hold for more than a few hours, and then the trend/channel of 1420 by the Friday close.





A good start for the bears. It'd seem likely we'll get an intra-day bounce, but a red close still seems very likely. The daily cycle offers at least 1 or 2 days further lower.

Thursday will be an important day. Perhaps we can see the VIX briefly spike higher to 17/18.

*I remain short, seeking an exit around 1420 by late Friday.

**As the market becomes more volatilie again, updates will become more frequent.

Volatility primed to explode

The current VIX of 15.43 remains very low in historic terms. Typically, we'd normally be somewhere around 20. Considering the endless socio-political and macro-economic problems out there, it is truly incredible to see both US and other world markets so utterly complacent.

Today's 9% gain in the VIX barely registers as noise when you consider the bigger picture.

VIX, weekly, 2yr


The underlying MACD (blue bar histogram) cycle is due to go positive cycle towards the end of this week, or early next week. There are some good signs that the cycle is well overdue a move to at least the mid 20s.

First near term target is the big 20, a few consecutive daily closes over 20, and we should at least test the 24/26 zone - which historically has often been where a intermediate sized VIX up cycle maxes out.

Seeking a lower high

As noted in the index update - regardless of where the current down cycle floors, the doomer bears should be seeking a lower high<1474. If that is achieved, then a major index cycle top may have been put in. Although its something that will take a few months to be absolutely sure of, which of course is of little use for short-term trading!

Those VIX calls sure are 'cheap', but then, that's been the case since late June, and the decay on options really is a problem if the entry is not timed well. I haven't picked any up yet.

If my 'two red flags for October'* are confirmed at this Friday close, then that does bode for the VIX to explode higher next month. The only issue then is, 'how high?' .

Goodnight from London

*I am seeking transportation index to close <5000, and WTIC Oil <$90, both at the close of trading Sept'28.

Daily Index Cycle update

The main market opened higher, but it sure didn't close that way. The main indexes closed lower by around 1%, certainly not a collapse, but relative to recent weeks, it sure was!

Lets take a look at how the daily cycle charts look...

IWM (representing the rus'2000 small cap)





It is starting to get a little hard to argue that we have bull flags on all the indexes. The sp' could certainly still be a fairly good bullish flag - so long as we don't break 1420.

The transports remains...a literal train wreck. As I relentlessly keep noting, a monthly close <5000 would be a red flag for October.

With the VIX closing 9% higher, today's daily candle looks pretty bearish for Wednesday, and indeed for the rest of the week.

My best guess is that this down cycle will floor around 1420 by the Friday close. I will most definitely close out all short positions if that is the case.

*the doomer bears looking for trouble in October really need to see the indexes put in a lower high (<sp'1474), before they can get overly excited about much lower levels.

A little more later.