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Tuesday, October 20, 2009

VIX, Sentiment and Ending Diagonals

The VIX chart appears to have its prices getting compressed on its 15 minute chart. It makes a nice ending diagonal. It may have a squiggle or so left to go. An ending diagonal almost always results in a price move in the opposite direction at least to the spot where the ending diagonal started. (In this case thats about a VIX of 24) Often they go further than that.

Markets were red today. VIX was red also. Usually that divergence during P2 rally has meant the market will move up the next day. But at some point that theory may not work so well and my ending diagonal chart would be one of those times once it "bottoms".

Indeed as I suspected, bullishness actually increased today over 1 bp even as the market corrected, at one point, down DOW 100. That is a display of complacency that its just another "pullback consolidation". And perhaps it is. However, I'd be more apt to say that it was a shift in sentiment toward true bullishness and complacency, and dropping the "Wall of Worry" attitude a bit.

In other words, that likely indicates that a majority of market participants view today's pullback as a mere "price consolation" rather than something else. Having the DOW maintain over 10000 for the most part will do that to you I suppose.

BIDU is a very interesting chart. It is close to its rising trendline. I threw a count on it and again the important point is that no matter how we count it, it may be some kind of ending diagonal move (and that would also be the case if it topped at $428)

And finally BKX, after an ending diagonal sports a solid 5 down and now it appears to be trying to trace some kind of correction back upwards. Of course if you want to get technical, it actually could be said to have traced 7 waves down which is a corrective pattern.

Again, the market never likes to make things easy for anyone.

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