Watch for EMA Crossover on VIX...

So my know-it-all jerk indicator on the Yahoo MB worked again... at least for one day. AMZN calls got whacked, KO calls back to my buy point, MTL got whacked (down 5% - can you say "de-risking"?). And all that was made up by gains in DGP, SLV, and VXX. My portfolio was totally, absolutely flat for the day.

Now the US stock futures are already showing cheerful numbers like Dow +30. As if the 2% sell-off was all they needed to reload the longs (BTFD, as Merrill Lynch already advised clients).

That could well be the case, but I just wanted to link this interesting chart from the guys at Breakpoint Trades (they let you subscribe for their free TA newsletter).

It's a chart of VIX, except it's a chart plotting the two exponential moving averages (13 and 34) without showing VIX. Watch for a definite crossover of EMA13 over EMA34, after a positive divergence on EMA13. The last time that positive divergence happened was right before the last year's Flash Crash (May 6).

This time, relentless POMO bombardment unleashed by Ben seems so far to have retarded the spike on VIX. We'll see if bears can use the geopolitical turmoil to push for more downside..

VIX Jumps on Egypt as Stock Market Dips

In the stock market carnage, particularly on Nasdaq, NFLX continued to go up. Oh well.

Other than the missed $400 additional gain if I held on to the option, my portfolio recovered some of the lost ground on precious metals (now that this punk trader finished liquidating his stupendous COMEX futures positions). He caused thousands of dollars of paper loss for me in such a short time, and I will make sure I'll have a word with him if I see him.

In the final minute of trading, I grabbed VXX, a very small position. It is an ETN on short-term VIX futures. Since this is an ETN, I didn't think it had options on it. Had I known, I would have just gotten the options. There is a scarier ETN called TVIX, that's leveraged.

VXX jumped 8% today with a huge volume.

The reason why is finally getting obvious to many people: Egypt.

Many inverse ETFs have been showing positive divergence lately. Here's what VXX looks like: a blip today after a long, long price decline as VIX was dying, but with positive divergence developing on MACD (the best indicator for me these days).


It's outside the chart above, but in May last year it went from $70 to $140.

Slow stochastics hasn't given a buy signal, but so? As Zero Hedge says, we're in one of the first "quantitative" revolutions. High VIX times, probably. If everything is dandy and nice again on Monday, so? It can simply collapse on Tuesday again. Who knows.

Be safe and do your DD.

Goodbye VIX, and Death of Inverse ETFs?

Seems like it, though never say never. As VIX heads towards sub-10, it is killing the inverse ETFs like SKF. The point and figure chart of VIX has 7 as the target.

The chart below plots VIX and SKF.


VIX is about to break down from a double bottom. If this breaks, hello 7. The last time VIX dipped below 10 was in November 2006 - February 2007.

VIX Is As High As It Was In May 08, Oct 07

at 16.23.

Take a look at the chart. The Volatility Index landed on some sort of support line from October 2007, when Dow and S&P hit their respective top. May 2008 was a minor top, from which the decline started that led to the crash in October that year.


Does this indicate we are again at a top? I don't know. The index could simply dip under this seeming support line and go back to the pre-crisis (before August 2007, when subprime mortgage crisis started to hit the fan) level of low teens (as if the crisis is over...).

Many analysts, traders have been saying that the rally since March 2009 is getting too long in the tooth. But then, I believe many of them have been saying that since July 2007.

Expanding Wedges on VIX

I've read that an expanding wedge pattern near the top after a prolonged upward movement is bearish, a topping pattern.

What about an expanding wedge near the bottom, after prolonged downward movement? Is it bullish? Bearish? Anyone?

Because that seems to be what I'm seeing in the VIX daily chart. Not just the index movement, but also RSI, MACD, and slow stochastics (12,3).

Put/Call Ratio in a New Channel?

Upfront, I must say I don't know enough about this indicator, I don't use them regularly (it is considered a secondary indicator). I'm no TA expert and I don't even know the regular TA applies to this indicator. But the recent decline of VIX below 30 piqued my interest.

This is a weekly chart of CBOE Options Total Put/Call Ratio Index, over 3-year period. Put/Call Ratio is a gauge for market sentiment, and considered a contra-indicator. If the ratio is too low it is considered to be signaling over-bullishness and imminent market turn. If it gets too high it is considered bullish. It usually spikes up in market fear/panic.

Looking at the chart, however, I noticed that the March low happened when the ratio was trending down. After the low, the ratio kept going down.

I eyeballed the range for the most part of 3-year period between the green lines. The range between the blue lines is my eyeballing of the trend since last October, when the market started to crash in earnest. It's a down-trending channel to me, if that's possible. Could it be because of the popularity of leveraged ETFs, and investors don't use options as much these days? (Therefore the ratio doesn't give a meaningful enough signal?)

So I put 4 charts just showing the weekly volume of popular leveraged ETFs below the Put/Call Ratio chart: from the top, they are SKF (double short financials), UYG (double long financials), FAZ (triple short financials), and FAS (triple long financials). I picked financial ETFs, as the main cause of the severe market decline has been attributed to financial stocks. The down-trending Put/Call Ratio does seem to correspond to markedly increased volume on these leveraged ETFs.

It's also entirely possible that it is basing, and getting ready for a spike up.

VIX - the Fear Factor losing steam?

SKF blogger BS on the Market (link right column "SKF Bloggers") has a unique focus on VIX, Chicago Board of Option Exchange Volatility Index that measures market expectations of near-term volatility conveyed by S&P 500 stock index option prices. It is often considered a "fear gauge" in the market: higher the number, more volatile the market (= the market going down).

It hit the high of 89.53 on October 23, 2008, though the market low in October came a few days later. Since then, the successive peaks got lower and lower as the market descended lower, with a lower support at a trend line and all of which can be called "falling wedge formation". Lots of chartists call it that way, and since it is considered a bullish formation they see the market reversal to the downside imminent.

Even as I write, the market has descended into the negative territory...