Tuesday 14 October 2014

Volatility fails to confirm the new equity lows

With US indexes building upon opening gains, the VIX was knocked lower (intra low 21.48), but with afternoon weakness, the VIX clawed back upward, settling -7.5% @ 22.79. Near term outlook is for an equity bounce, with the VIX cooling back into the mid teens.




We have an important issue to consider today.

Whilst the sp'500 and Dow broke new multi-week lows, the VIX failed to confirm it, via a higher high.

This is an important issue for all traders to keep in mind, and with the Trans/R2K both posting significant daily gains, it is probably just another sign of a short term turn.

Overall, I still expect an equity bounce of 2-3 weeks, to the sp'1950/60 zone, which should equate to VIX back in the mid teens.

Considering the recent price action in equities, commodities, and the VIX itself, I'm looking for sp'1700s, with VIX in the 30s. I suppose 40s are possible, but first things.... first.

more later.. on the indexes

Closing Brief

US equities broke the rather severe three day run of declines, managing mixed gains. sp' +3pts @ 1877 (range 1898/71). The two leaders - Trans/R2K, settled higher by 2.6% and 1.1% respectively. Near term outlook is for some degree of bounce across 2-3 weeks.



*with the new cycle low of sp'1871, I've adjusted the down channel.

Suffice to say, another day for the equity bears. The earlier gains managing to 1898, was fully reversed with a 27pt swing to the downside across the afternoon.

Volatility is back.. and it ain't going away now for some months. Get used to it!

Best guess.. we're still headed higher across the next 2-3 weeks. Whether we max out around 1950, 60.. or even a little higher... should make little difference to the equity bears. With the monthly cycles utterly broken, we're broadly headed much lower across the remainder of the year.

more later... on the VIX

3pm update - battling to hold gains

Unlike yesterday afternoon, the market looks set to hold some gains into the close. With the break of the short term down trend, market looks set to put in some daily closes back in the sp'1900s. Broader picture though remains extremely bearish for November.



*price action is a simple break of trend... and arguably a back test of the down trend itself

...well, yesterday things took a major hit, when the morning low of sp'1890 was taken out. I have to guess we won't see that happen in this closing hour. Price action is more stable, and we have a clear break of the down trend on the hourly cycle.

Equity bulls should be content with any daily close about the hourly 10MA, which in the closing hour will be around 1888 or so.

Oil remains notably weak, -3.8%

..updates into the close

3.09pm.. sp'1878.. equity bulls have a mere 3pts of buffer room left.... if 1874 fails... then another closing hour snap to 1860/50......

Its been so long since we've seen this.... I think almost everyone has forgotten.

3.22pm... and there goes the 1874 low....  VIX rallying... still -1%.. but set to turn green.

Door is now open to 1860/50 zone early tomorrow....

Ugly market... Oil -3.5%... and that sure isn't helping the energy stocks.

3.26pm.. another major fail for the bull maniacs. It truly is a full THREE years since we've seen this kind of price action.

3.30pm... regardless of the close... with new lows, the bears remain in FULL control.

The only notable aspect left to achieve is a corresponding higher high in the VIX.

Despite the index weakness, airlines are holding gains, DAL/UAL +5%

3.39pm  So.. we have new index lows, but the VIX is NOT confirming it.

With the Trans and R2K still positive on the day.... bulls still have provisional sign of a bounce.. although I realise the new Dow/SP' lows are sure as hell not bullish.

3.47pm... VIX still failing to confirm the earlier new index lows.

Regardless, another day in favour of the bears.. with the bulls still failing to sustain gains.

Notable strength, F +2%.. but its a clear 3% or so below old key support.

2pm update - still a bit choppy

US equities are holding moderate gains, but price action remains pretty choppy, with a minor pull back to the mid 1880s. VIX remains cooling, -7% in the 22s. There is renewed weakness in Oil, -2.2%, with Nat' Gas -2.6%.




So... the sp'1874 low is still holding, and I'd expect it to hold into the close.

I realise though, some are seeking further downside to 1860/50 before a key low. I suppose its possible, but we do have a clear break of the down trend (see 60min cycle).

Notable strength: airlines, DAL, UAL, both higher by a very significant 5%

2.30pm... despite the weakness, price structure is a baby bull flag.

so long as 1874 holds... its a valid bull flag leading higher into tomorrow.

2.37pm... with the move to 1880, micro flag is arguably busted. VIX clawing back upward... now -3%.

The one super bullish aspect today.... R2K +1.2%.

2.46pm... and another push higher....   this kind of volatility is still so.... unusual. VIX -7%

12pm update - down trend broken

US equities have broken the short term down trend, with a key floor of sp'1874. Equity bulls should be content with any daily close in the 1885/95 zone, anything above 1900 would merely be a bonus. VIX is naturally imploding, -12% in the 21s.




Suffice to say...  we're now headed broadly higher... but a bounce it will be.. resulting in a critical lower high in late Oct/early November.

Lets see how excitable the mainstream will be when we're back in the 1925/50 zone. No doubt they'll soon be looking to new highs, the sp'2100s....

... oh how pleasing it will be to see the faces on clown finance TV, when this all unravels in the next wave.

VIX update from Mr P.

Time for lunch........ back at 2pm (I'm really struggling today.. sickly)

11am update - battling to break the down trend

US equities sure are shaky this morning, with opening gains failing, but holding the Monday low of sp'1874. A renewed push higher is underway, with the hourly 10MA @ 1895, as key resistance. VIX continues to cool, -7% in the 22s.




Suffice to say, we're close to confirming a floor.

Just need a few trading hours above the hourly 10MA, which would be a clear break of the down trend.

Notable strength in the R2K, +1.6%

Airlines are strong, DAL/UAL, both higher by around 5%

11.38am Market breaking the down trend... with. VIX -10%, 21s

11.42am.. Down trend BROKEN.

We have a floor of sp'1874... and we're now day'1 of a 2-3 week bounce.

10am update - opening gains

US equities open moderately higher, and the bulls are making a play to break back above the important hourly 10MA - currently around the big 1900 threshold. VIX is cooling, -4% in the 23s. Oil remains weak, -0.4%.




So... opening gains, but just getting back above sp'1900 is going to be difficult, and will likely take 2-3 days.

As many recognise, with opex this Friday, Mr Market would probably like to destroy as many of those index puts as possible.

Best guess... a 2-3 week bounce is due... 1950/60... very viable, which would likely equate to VIX 16/14 zone. From there...the big short-side money is made in November.

Notable weakness: DRYS -2% in the $1.40s.. Mr Market sure doesn't like the cancellation of the debt auction.

10.01am... gains fading very quickly... however the R2K is holding gains of 0.7%... bodes for another renewed push higher in the broader market as the day continues.

10.07am.. Market trying to build a floor around 1880.

*Armstrong posted a LOT of good articles in the past day... go read >>>>>>>>>>>>

Pre-Market Brief

Good morning. Futures are moderately higher, sp +8pts, we're set to open at 1882. Metals are continuing to climb, Gold +$4. Oil remains weak, -0.7%. Despite the daily close well below the 200 dma, an equity bounce still seems very due.



So, we're set to open a little higher, but clearly, the market is having some real problems. A rally to 1950/60 seems very viable - across 2-3 weeks, before a more severe wave lower.

For me, min' target by late November are the low sp'1700s... along with VIX 30s. 

Update from a typically loud Mr Carboni

I'd agree with Oscar that this is not the start of a 2008-esque crash, but I would argue it is more of a summer 2011 intermediate correction.

Good wishes for Tuesday

Weaker than expected

A few weeks ago, the low sp'1900s seemed a bold call, and yet we're now significantly under the August low of 1904, and the 200 dma is a clear 30pts higher up. US equities look utterly broken. Regardless of any bounces, this market is headed much... much lower.



*first, I should note, I'm guessing we will see at least some further weakness early Tuesday.. so I will probably need to adjust the above chart/wave levels.

So, we start the week with a third consecutive red candle on the weekly 'rainbow' chart. We're now consistently trading below the lower weekly bollinger, and frankly... even I'm surprised.

I had expected some significant downside to the low 1900s, but the past 3 days have seen some rather severe price action. Further, it is being reflected in the VIX, which is now trading in the mid 20s for the first time since summer 2012.

Too low for a H/S?

With the break under sp'1900... the H/S scenario I have been highlighting lately is actually in jeopardy If we go much lower, the neckline would be too slanted to be viable.


I realise some would already ditch the above scenario, in favour of a simple 123 down wave, with a third in November, but for now, I'll keep it.. if only for another day.

Looking ahead

There is no significant schedule news/data tomorrow.

*there is QE of around $1bn

A bounce still seems due

I remain absolutely bearish about the intermediate picture - as I detailed last Friday. Despite today's declines, I'm still resigned to an equity bounce of some degree into late Oct/early November. For me, that will merely be a place to go heavy short, with a target (revised) in the low 1700s. Increasingly.. it is looking like the 2011 retrace (of 38%).. of sp'1650s is now a viable possibility.

So, in the immediate term, I'd still look for an equity bounce, with VIX retracing from the mid 20s to the mid teens. It wouldn't be that unusual, we saw just that in June 2011.. before the VIX exploded from the teens to the 40s.

Goodnight from London

Daily Index Cycle update

US equities continued to slide, sp -31pts @ 1874 (Intra high 1912). The two leaders - Trans/R2K, settled lower by -2.2% and -0.4% respectively. Near term outlook still offers a significant rebound into late Oct/early November, before more severe downside begins.




A pretty interesting day to start the week.

Opening weakness to 1890, but then a strong rebound to 1912... only to get stuck, and then a rather strong severe break at the morning low.... falling to 1874.

Right now, there is no clear floor... and we've not seen this degree of consistent weakness since summer 2012... when VIX was 27.

a little more later...