Market Analysis

$VIX Uprising

As long time readers know I’m a big fan of $VIX technical structures and compression patterns. Often dismissed as non chartable I think we’ve successfully to put that argument to bed a long time ago.

Recently in “Key Charts” I again outlined the $VIX as one of the key charts to watch and it’s been interesting to say the least here during this OPEX week and hence I wanted to outline an update as a pattern is forming that suggests a major $VIX uprising may be in the cards this fall.

Yes, $VIX again came under pressure into monthly $VIX futures monthly contract roll-over, but interestingly it didn’t manage to fill the August gap which would have been standard fare if you will:

The good news for bulls may be as now 3 open gaps have formed on the futures contract. As ultimately all $VIX gaps fill there is something to look forward to eventually for bulls. But for now the $VIX keeps telling a larger story that’s a lot more ominous.

In a way I regard the $VIX an expression of central bank control and their self declared mission to “calm” markets. During the most successful times of central bank interventions in recent years the $VIX was very much compressed and contained. Yet, despite trillions of interventions and the deceiving highs on indices such as $SPX and $NDX volatility has remained stubbornly high, all a reflection that perhaps central bank control is not as strong as it appears. The $VIX is anything but calm.

And so we can observe that following the latest breakout of the $VIX (and leading up to the compression phase of this OPEX week) $VIX again broke out of a smaller compression pattern:

In recent months $VIX has gotten crushed during every Friday like clockwork and perhaps it will again this Friday.

That’s not the issue.

The issue is that all of these repetitive structures are forming what could be a much more ominous pattern that could even exceed my previous 46 target.

The structure? A potential larger inverse pattern:

First point to make: This pattern at this stage is unconfirmed and it’s likely going to take some time to build fully. But this week’s low in the $VIX matches up nicely with the July left shoulder and this summer’s low volume rally and summer lows in the $VIX have formed a very clean head structure and the recent surge to 38 and subsequent drop this week have begun the process of forming a right shoulder.

How can this play out? What would confirm it? There are many possibilities of course. Since we’re just at the beginning of the right shoulder formation we may, for example, have a quick spike toward the neckline, and then another rally in markets from there compressing the $VIX again. All of this would ironically firm the structure and make it potentially very potent into the October and November time frame, i.e. into the US election.

The potential fire power of the pattern will have to be monitored as the pattern develops, but currently it suggests a $VIX spike into the 55-70 range if the pattern confirms which would come with a break above the neckline.

This is journey and patterns need time to develop and patterns can of course get invalidated. I suggest everyone keep an eye on a potential $VIX uprising of size. We certainly are keeping close watch for sure.


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Categories: Market Analysis

21 replies »

  1. Human’s propensity to see “patterns” in random motion is very strong. VIX is the tail of the dog: 98% of the time VIX (price of SPX options up to 1 month out in expiry) is merely reactive to SPX price action and volatility. Divining future price action through a derivative of the price action…meh. Of course the VIX will spike again, eventually, because eventually SPX will tank again. But sorry, I put zero stock in “VIX patterns” myself. Just my $0.02. I’ll base my VIX plays on the SPX set up and action directly (direction of the nose of the dog).

  2. Bluebells? In Kent in September? I know this planet is fucked but you cannot be serious. They sure look like bluebells, maybe they’re not, maybe it’s an old video. Please explain, Sven.

    • Ooops, my bad, sorry Sven – I didn’t notice it was a retweet from April, phew. The tree foliage was another give away. But this planet is still fucked and getting fucked-er. ‘Tis fungi season now, I hope you partake – it looks like your nearby countryside is a promising habitat, maybe post some pics of any you find? The derivation of my nick is the contraction of agaric 😉

      I hope and think you’re right on the VIX, Sven, as one of my VIX bets is a mite underwater atm. On the other hand Mella thinking VIX could go to 130 in next couple of years is troubling.

      Could be time for another short of TSLA and AAPL, but I’d wait till the last 5 minutes of witchy day unless there are signs of a strong downturn before then.

  3. Much more than 46. I’d say 171. “Black Monday (19 October 1987) was 150.19. Intraday high was 172.79 the day after. Although the calculation of VXO is slightly different from VIX, their values are very similar. “

  4. My indicators say the March VIX high above 80.00 is already assured of getting taken out in the future. Today, 9/18/20, there is a little mini gap fill down to 26.00 to retrace yesterday’s gapup in the VIX. So we may well see some fireworks. I don’t expect the S&P500 to trade much belowst 2900. If you want to see an explosive basing pattern forming, check out ticker DUST. My long term target for it is over $100/sh. Right at a time when every finan”shill” ex-spurt with a blog is calling for $5000 gold, $50 silver, and the collapse of the dollar. GOOGLuck wit dat.!

  5. Wow, now we have to understand vaccine science in order to invest safely. The Pres attempting to pump the markets today at 3:25 press conference (normally held later) couldn’t even get us a 15 minute stick save (although “futures magic” got us 10 points in 10 minutes after close on low volume). Not sure many are confident we will all have access to a duel needle, high efficacy vaccine by April 2021. It did not help that Director of CDC let slip this week that masks will be more effective than the upcoming vaccine (do a news search, a major slip of the normal vaccine hopium) Polling shows about 60-80% are thinking of letting the other 20% to 40% “human trial” the 1/10 shorter than normal vaccine approval process before they want it stuck in their arms for long term testing. Markets should have spiked on the vaccine news just on the news itself, regardless of the lack of logic, so that was not a good sign for market volatility in the next few months as the “vaccine” news seems to be loosing it’s potency…

    • I’ve not researched the potential vaccines in depth yet, prefer to save my effort for when any of them look like being used and when more comprehensive technical info on the technology and trials becomes available. But…

      Any vaccine put into widespread use is likely to be 30% to 90% effective for 3 months to 2 years – less than 30% for 3 months is probably more harm than good. A good midpoint ballpark might be 60% for 1 year, a great result would be 80% for 2 years. So, not a magic panacea. Then there is rollout and uptake. Anything less than 40 to 60% population immunity though vaccine and herd immunity is not going to stem infection rates much. COVID-19 may also mutate significantly (there are already several identified mutations but they don’t seem to have changed it too much), which could be bad and / or good, making it more or less transmissible, more or less harmful.

      Note that flu vaccines are typically 40 to 80% effective for 1 to 5-ish years maximum (on the strains vaccinated). COVID-19 vaccines are unlikely to be better than this, we’ve had several decades of experience with flu vaccines. The probability is that we’ll be resorting to on / off lockdown variants for several years.

  6. Powell was in a mad panic last week. Clearly they have lost control. All was dependent on trillions and trillions of additional fiscal spending. Fed can only lend, Government can only spend. The political chaos has undermined the Fed’s grand plan. For once bad government is a good thing!!!

    • I should add why: the Fed is destroying the free market and all market mechanisms. It’s creating asset price inflation that has put the whole economy in a doom loop. Extreme asset price inflation means their own model has become unworkable – they want people to borrow, they want banks to lend, but if assets are so overpriced and the markets so distorted who is going to lend and borrow to either purchase or take security over those highly over priced assets?

      Mad economics.

  7. “On December 31 we won’t celebrate the arrival of the New Year, but rather we’ll celebrate that 2020 is finally over.” Sven Henrich

    “This 31st of December 2020, by presidential decree, tomorrow will be 1st January 2020. I will remain in office for another year, president elect Biden (who only won using fake mail in votes) will not take office, the senate will remain in Republican hands. Next December I will renew this decree, it will be 2020 forever while I live. MAGA FOREVER!” Donald J. Trump

  8. Jim Cramer who is still at CNBC is telling his members to buy this dip and that this dip is like going to the store and finding things on sale. Don’t fall for this cheerleading clown show. He will be wrong and shocked when markets move down even further.

  9. Dollar up, silver up, oil up, stocks up. Just a rebound from dip buyers encouraged by the Powell mnuchin kudlow and Cramer put today.
    They’ll all be shocked to see that BTFD no longer works.

  10. Sven – The Fed is trapped in a situation in which they know they can not escape. Even their own data (Per BofA Research link below) shows a 3.75-4.25% interest rate is ideal for economic growth, yet they can not move interest rates even one percent without volatility spiking through all risk assets on a global systemic scale. Not even the Fed knows how this ends be it debt jubilee, currency reset, inflated it all away, etc.
    We are all part of the global experiment with no way of knowing how it plays out…

    https://www.zerohedge.com/s3/files/inline-images/lower%20yields%20force%20households%20to%20save%20more_2.jpg?itok=Yh4BaPNG

  11. Just another BTFD attempt today. CNBC analysts trying to pick the bottom anytime markets show any green. Not the bottom.

    ‘Bottom or Bust’

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