Market Analysis

VIX Check

Time to check in on the good old $VIX.

Crushed again on Friday following another week of meaningless chop during trading hours. The broader price ranges continue to be printed in overnight hours, be it magic overnight lows leading to gap ups and ramps, or, as on Friday, seeing highs made during pre-market an th tight price ranges during most trading hours.

Fact is markets stayed in a tight range for the past 3 days.

And $VIX got crushed on Friday into the close:

Who need protection anyways. After all it’s a happy worry free market on autopilot.

What’s the latest action tell us about the $VIX?

Interestingly enough that $VIX crush on Friday accomplished something that needed to happen: Fill the lower $VIX gap.

My view: All $VIX gaps fill eventually. While equity markets have been stubborn to not fill many open gaps below, the $VIX is more consistent in filling gaps and that spells perhaps good news for fans of volatility.

Why is that? Because $VIX has now left 3 open gaps above, not only that, $VIX has also build a wedge formation which is bullish:

That wedge has risk lower still, but note how this week’s ever so temporary market dip got $VIX to the upper trend line before rejecting signaling relevance.

Bottomline: $VIX is winding up again and it will want to press higher and fill these gaps.

Perhaps also of note is that the $VIX has so far printed a higher low while $SPX went on to new highs, similar compared to the run ups to the January and September 2018 pre-correction peaks:

All of these patterns leave the door open for a much larger $VIX spike to materialize still in 2020. $VIX 46 remains on the table as a risk scenario.


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Categories: Market Analysis

3 replies »

  1. Thanks, Sven. I think we will finally get very rapid decline in next few weeks (maybe just 10 trading days) which will look like beginnning of something more. We should at least retest “Iran attack” overnight low of 3180 in ES which, coincidentally, is precise 0.382 retracement of advance from 3rd of October. Cash market often likes to revisit places that he was not present at the time when ES visited.
    Next potential level is major trendline connecting December 2018 2346 low and mentioned 2855 low from Oct 3rd. Currently something like 3150. And in some bear porn scenario I imagine S&P to revisit 0.618 retracement of the move from Oct 3rd and meet 200 DMA at 3050s.

    10 yr yield should crash to 1.40 in the same time for the final panic move to safety.
    This collapse scenario is compatible with patterns playing out in many emerging indexes as well and in DAX, Nikkei and USDJPY.

    But I am starting to capitulate on longer term as I think central banks response will be overwhelming. I see 18-year major deflationary cycle of 2000-2018 as finished in Dec 2018. This left translation of the cycle with brief crash-like decline of Oct-Dec 2018 is really all the bears were offered. Just 20% decline … ridiculous

    After we get short and violent, news driven mini crash in next weeks I expect the real mad scramble to print to begin. So the next 18 year cycle, 2018-2036 will be inflationary, just like 1966-1982. And I know that 66-82 was real decline in stocks. But this time we can get hyperfinflationary so US indexes will start to resemble Weimar or Zimbabwe in latter part of 2020s decade…

    And after this last opportunity we bears must start to change our attitude to not get crushed and bankrupt. Gold, resources and energy will be the story for current 18yr cycle…

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