Last week’s topping signals in the $VIX have worked out well correlating nicely to the action in the January analog we’ve been trading. Our roadmap has continued to follow the projected action nicely and a move into the gap fill zone of $196 $SPY cannot be excluded as a possibility for the current OPEX week. In fact, last night’s bull flag call played out beautifully this morning and the current action is now consolidating above the Monday breakout level:
It looks rather bullish as once again markets are ignoring the poor retail sales data this morning. Markets have been doing this all year haven’t they? So new highs here we go, no? Maybe. In the continued search for signals I’m watching the $VIX again and the $VIX could be in the process of flashing a bearish signal for the market.
What are you talking about, the $VIX is dropping like a cold sack of put positions you say. Fair enough, yet have a look at this daily chart of the $VIX:
This appears to be an inverse heads and shoulders forming. Note that the current shoulder forming is coinciding with the 50MA. Not only does it make it an area of confluence with the previous shoulder, but it gives us an easy measuring stick. If it bounces from there we may see this pattern play out. A confirmation break above 17.5 would trigger a target of the 24 area. Sounds scary? In historic terms it’s all standard stuff, in the past 2 years it’s unheard of. The good news: If the $VIX drops below the 50MA on a closing basis the pattern is likely invalidated.
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Categories: Daily Market Brief