Tuesday, September 1, 2015

The problem with the VIX

Zero Hedge has been making quite a fuss about the volatility ETFs, which I have been using as an indicator these last few weeks that this decline is not yet over.

VIX futures in particular have drawn a pattern that is especially dangerous for the broader markets, and which I think should be respected, a right-angled ascending triangle with a possible target up around 38.  This is a very big deal!

Finviz VIX futures daily

If we reach this chart target on VIX futures, than it is safe to say that the 1867 SPX low will not hold, and neither will expected support at 1820.  Rather, I think we could go as low as 1740 SPX this week on this kind of surge, triggered with crash-like moves on tomorrow's early morning data releases.

A low of 1740 would be an extremely ominous event here.  First, it would mean that it is highly unlikely that we regain the 1900 level on the SPX; recent dip buyers would be stranded with losses, which would become more severe as the new Bear continues.

Second, 1740 SPX would become a neckline for a vicious head-and-shoulders pattern, one that would drop us to the 1346 SPX level as early as the first week of October.

The VIX chart is screaming danger for the short-term.  Do be careful.

20 comments:

Bicycle said...

Here it comes. Friday.

Bryan Franco said...

I think we are in the process of forming a triangle on most indices, one that will probably last through mid-October. Then we break south for a bear "trap" below last Monday's lows. Then we try to reclaim highs by end of year, and fail... big time.

Christian Gustafson said...

VIX futures and the volatility ETFs kissed back the ascending triangle from the top into the close. Either it's a failed breakout, or they will bounce off this level and head up dramatically tomorrow.

SPX closed right on the descending channel wall from the top. Crazy day.

Permabear Doomster said...

Sometimes CG, I wonder if we're looking at even the same market.

VIX price structure was a clear bear flag... confirmed yesterday.

VIX is headed for 22/19.. at least.. by FOMC week.
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I see people telling me they are going to hold TVIX into 2016... oh yeah.. that'll work out just fine.
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I'm seeing VIX 60/70s as viable... but not until the current down wave completes.
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Bicycle said...

This? Rolling over right now

Reverend Nihilism said...

As soon as the market starts to get a bit of traction, oil spikes and smacks it right back down. Starting to look an awful lot like 2008 to me.

Christian Gustafson said...

Oh yeah, Doomie, you don't want to hold volatility ETFs one minute longer than you have to.

Bears have to wonder if this recent plunge is a replay of August 2007, an aborted crash.

In 2007 the market continued on to New Highs in October. We may do the same.

We had a 10-handle bump from Japanese CB intervention the other night, and now ECB QE pledged again today.

Reverend Nihilism said...

Yep, the 2007-08 replay looks quite probable here. Go back and look at the oil/market relationship around that time. By the time we got to the first of the year, oil had screamed higher and it was lights out for everything (including oil) after that.

Reverend Nihilism said...

The problem I have with a new ATH here, is that it seems we're are too far down the hole to climb up there again. Rather than it being like Sept. of 2007, it looks a lot more like Jan. 2008.

David Does said...

i agree with your vix analysis, vix to retest 50 as market bounces at previous weeks crash lows...down wave to begin friday or tuesday, sideways chop, minor recovery after, till end of sept with another down wave possible end of sept

Bicycle said...

back to this?

saahilcap said...

my count fwiw has been -

1 ended at 1867
2 retraced to 1994 (a-b-c with b retesting the 1867 lows)
3 down is now unfolding, with (1) ending at 1903, (2) ending today at 1975, with (3) of 3 on deck to 1740-ish by next week.
Monday's move to 1903 looked impulsive to me, although most e-wavers are calling it (b) in the abc up wave 2 sequence.

thats roughly it, without all the sub waves , hope i didn't violate any rules

Christian Gustafson said...

I could see the W2 count back up to kissback the old rally channel, simply because there is no news that matters now until September FOMC.

Bryan Franco said...

Still just think we are in a wave 4 of 1 down. The action over the past week is very triangle-like. I think this lasts until Octoberish- ish. Then a headfake below August lows, then a rush to ATHs in a soaring wave 2 up through year end. November and December are exceedingly strong months, and so are years ending in 5. There is a huge election cycle phenomenon underpinning this quirk. Also, November and December's are even stronger in years ending in 5. We crash in January from 2085 ish.

Christian Gustafson said...

I think "A" ran from the 1867 SPX floor up to 1993, and we put in c of a B-wave triangle today, with d and e left to go next week. Then a final bump up to 2040 to kissback the rally channel right into FOMC.

Then my bestest girl Janet will raise short-term rates, and we get to visit 1525.

Did you see, even our friend the VIX put in a 5-wave move off its high.

I'd really like to see VIX back around 20 for the FOMC announcement for cheaper SPY puts and UVXY.

Bryan Franco said...

Soaring 6 month yields hinting at either "scramble for cash" or stealth expectations for a mini interest rate hike. Dunno what to make of it.

Bicycle said...

I am sure we will form a floor as soon as I post this here but it's worth another look.

benjoyce said...

As of Saturday Sept 5th,......measured move of spx.

triangle forming now sept. 5th on daily chart and has broken to the downside. The measured move for this pennent is 1700 spx. What can bring it down there? China has been closed for two days. Maybe China gets ripped to the downside Mon tues? Traders get back to there desks after drinking all weekend and sell?

I suppose the market recovers some after a big downside but really crashes as we get into Oct/Nov.

The following "will put some hair on your chest"

Must read: www.locutions.org
the source directing this is Mons Esseff, Sr. Tresa of Calcutta's spiritual advisor. A very reliable source.

1. The Crisis of 2015
Dec 6th, 2014 (prophecy for 2015)

Mary (Blessed Virgin Mary)

".....The greatest events will be the collapse of the economic structures. This will lead to even more enormous problems. There will be rivalries among nations, breakups of friendly cooperation that has been in place for years. The causes of these divisions will vary but when you see various nations pulling away from each other, when you see relationships being strained and even broken, then you know that I have told you ahead of time.
All of these divisions come from the Evil One....."

you can find alot of others like this from this source

Bicycle said...

E of the running symmetrical triangle might be in on this morning's pop, if we've seen the highs today already. Seeing it across SPX/DJIA/RUT/NQ

Christian Gustafson said...

It depends which way that triangle is pointing, Bicycle.

We could also be putting in wave d of B, with e still ahead and C up to maybe the 2040 SPX.