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Saturday, March 14, 2009

Putting Waves to the VIX

Yeah, I like to put a wave count on most everything if it is clear enough. The VIX's move up from a reading of 20 in September 2008 is destined to be retraced 100% by the end of Primary Wave 2. Its a long slog. Its still holding above its gap area and has finally caught up to its 200DMA (I show an hourly chart for wave clarity purposes). It would take a combination corrective pattern it seems to push the VIX back to 20 or so. That move down on the VIX would obviously coincide with a Primary Wave 2 up in the SPX.

The first corrective pattern was pretty clearly a sharp 5-3-5 zig zag. The next corrective is the connecting "three", known as an "X" wave, which is also usually a zig zag. But, this appears to be a contracting triangle. The evidence for a triangle is that pink (c) wave within the triangle is a very complex wave and a triangle tends to have complex waves in the (c) wave positions.

If the triangle plays out, that implies one more move up in the VIX toward 50 or 50+ or so. Is that enough to make the market go to new lows? I don't know. Perhaps the "X" wave ended at the pink (c) wave position, thereby making the X wave some kind of running flat. Could be. We'll see Monday. As with every other chart I've shown lately, everything is on an edge waiting to show its hand this week.

But the more I look, the more it appears the SPX wave 5(5) is still very much alive and kicking.

The government didn't react at the bottom at 666SPX. One more drop to sub 700, and I would bet they react. That too is perhaps more evidence the market bears aren't quite hibernated just yet.
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