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Wednesday, July 29, 2009

VIX and SPX Out of Whack

Something has to give to relieve the pressure or divergence between the two. Either the VIX must drop sharply and the SPX breaks above 980 and heads higher, or the SPX will break down below 965 and matches the amount of fear rise that seems to be occuring.

At the moment it is a tough call. But looking at the VIX chart, I'd say it might drop and fill a gap.

It is P2, so bulls get the slight edge. However I'll sit and watch and let the big boys figure it out.

19 comments:

  1. another way to look at it is from a market manipulation perspective and to think like the cabal.....gotta pull this pig back to sucker in some more shorts and to bring in the buy on the dip crowd....so .......flip a coin

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  2. This market is still very strong.
    A most impressive close given how the CYCLICAL and ENERGY names got clobbered today and the Treasury Auction was a flop. There's no way I would go home short today's close. No way. No how.

    XOM earnings out tomorrow morning before the opening. Street is expecting $1.02

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  3. Wags, strong maybe, but fear is clearly rising. It may turn out to be unfounded fear and they all get bullish again.

    But something must give one way or another and you cannot deny the fear rise is real.

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  4. Fear of missing the rally is rising.

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  5. I think that the VIX bottomed before the P2 or Kenny's B topped. (I am open to both counts at this time). It would seem acceptable that the big boys are snapping up puts (while they are still cheap) as they distribute shares purchased in March. I also think that P2 or C will top as the VIX retraces its wave 2 back down. Could be the same with the dollar, the bottom is in already.

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  6. As funky as today was, my count has not change. I think we work towards minute v starting tomorrow.

    I believe that falling wedge/contracting triangle completed wave e. We saw the beginning of minuette v to complete minute v near the close today.

    http://waveprinciple.blogspot.com/2009/07/is-it-still-wave-iv-triangle.html

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  7. Dan - I have no idea what you mean by "fear is clearly rising". Please clarify.

    In fact, the Investor's Intelligence sentiment numbers released today show a decent jump up in Bullish sentiment to 42.2% from 36.7% of a week ago. Bears have now declined to 31.1% from 35.6% from a week ago.

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  8. I will add that in EWP, pg 49 on triangles, it states, "Wave E can undershoot or overshoot the A-C line, and in fact, our experience tells us that it happens more often than not."

    By my count, wave e today violated that A-C line.

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  9. Wags, the VIX is a measure of fear via purchases of puts. More puts purchased means more fear of lower prices. Obviously someone is beginning to accumulate puts even while the wave count suggests another high is ahead of us.

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  10. Sol, well said. Call it fear, or call it uncertainty, it way, traders weren't sure these past few days of where the near term trend is headed. That was reflected in the VIX.

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  11. solwoldjr, could the higher purchase of puts be considered a hedge for those already long an actual equity position with no intention of selling that position?

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  12. there is another way to look at fear; the put/call ratio, it has been falling most of this consolidation i use a 10 ema on it and it does a good job , remember it's inverted.


    http://stockcharts.com/h-sc/ui?s=$ONE:$CPCE&p=D&yr=0&mn=6&dy=0&id=p38468921961&a=174156891&listNum=7

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  13. Dan,

    Do you no longer believe there was a triangle for wave iv?

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  14. solwoldjr- I am well aware of what the VIX is and what it reflects. That having been said, I am not surprised whatsoever that institutions who have been large purchasers of stock are now buying some "protection". No surprise at all at these levels.

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  15. that's what i was trying to get at wags.

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  16. If anyone is in any way unclear exactly why the VIX is the world's best sentiment indicator, I made a whole 45-minute video on the subject at http://masteroptions.com/?p=3 Everything is free and I have nothing to sell. I also have a brief post that is very relevant to this discussion at http://masteroptions.com/?p=95

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  17. Doesn't matter who or why they are buying protection. Its still reflects uncertainty.

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  18. Dan said:

    "Doesn't matter who or why they are buying protection. Its still reflects uncertainty."

    The uncertainty is coming over the leftover tea leaves from the Fed, which has cut off growth in the Money Supply from > 15% M1 to slightly above zero. If the monstrous growth of M1 was held as reserves and did not make it into M2, what will be the result of stagnant M$ growth?

    "The average of yesterday's Hyperinflation Worries and today's Depression and Deflation Fears do not average out to 3% growth and < 2% inflation..."

    CW

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  19. As I posted earlier ( towards the close of yesterday's session ) there was absolutely NO WAY that I would have gone into yesterday's close short this market. There has been nothing unusually wrong or "negative" in my technical work to have been anything but LONG last night's close.

    And here we are at SPX 995.

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