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Saturday, December 5, 2009

VIX and the (Short Term) Bullish Case

I look at a lot of charts and such in trying to determine whats happening overall. In trying to construct where and how P2 will "top" I use wave counts and patterns on just about everything. I marry them altogether and come up with a consensus. I haven't always done this, I am learning as I go.

So the quality of my work may be getting better over time, unfortunately all my learning warts are recorded for all to see. However I don't think I started this blog in too horrible a fashion.

I did lay out a triple zigzag scenario that would take until the end of the year and end at about the 50% fib mark.

Its just that in everyday practice, you simply learn so much more. I have never been through an extreme swing from bearishness to bullishness so I am feeling my way along as a lot of you and learning to follow my gut instincts via what the charts are telling me. Also being an EWI member helps me with learning about sentiment and such and other such tricks of the trade.

Anyways, the point I am making is that all the charts seemed to have just a "minimum" amount of stuff that I envisioned in counts. For instance the move up on Friday could very well constitute the "top". Its sufficient to be considered a C wave. However it still is not a totally satisfying "look". It could use that one last leg or so higher to make it "complete".

Specifically the dollar may have bottomed. But that doesn't necessarily mean equities will immediately move in tandem against it (or the dollar may get a wave [ii] retrace back who knows). Gold may have topped, but it doesn't tell us where equities are going over the next few weeks. Neither does oil nor other relationships.

But the VIX is certainly noteworthy in the patterns that it forms. Back on this post

I showed that the VIX traced an expanding triangle and that the next set of moves required a new VIX low to be set. Well that new low did happen by a mere .05 points.

But what doesn't look quite right is that the pattern is supposedly finished. It sure would have done the "minimum" and then that's it. It just doesn't "feel" or look right.

Technically the VIX had a bearish weekly candle which is not exactly screaming "turn". Also a smidgen of double negative divergence on the hourly VIX may just be signalling a further down VIX move coming early this week. Sometimes its the smallest of clues that I have learned to pay attention to. I am surprised they often pan out. Of course sometimes they don't.

That brings me to a potentially final chart pattern on the VIX: A falling wedge may be forming.
And that would mean further up moves in the equities markets. The final VIX moves would pan nicely with final equity moves up.

So that VIX falling wedge chart is one I'll be eyeballing this week. It sure would make for a satisfying count if it all played out a few more waves. Sentiment surveys are definitely peaking yet there is room for them to make an all-time highs. And the VIX would be at a low just in front of Christmas which only makes sense as the greatest point of complacency sets in.

Which would only be fitting for what comes next:P3....

So the VIX falling wedge chart will be an easy chart to follow. If the pattern doesn't hold, then you can throw this entire rambling post out of the window. However if it does pan out, it may just be pointing to the final moves...
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