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business newsSPX and VIX Update: VIX Likely To Be Forming a Bottom
By
Jason Haver
Feb 22, 2012 9:25 am
The SPX has reached the Wave 5 target zone, and the VIX has excellent odds of forming some type of bottom here.
PRINT
Yesterday the market traded up a little farther into the target zone, and has now satisfied the minimum requirements for the fifth wave up we've been looking for since February 8. I literally spent six straight hours charting 10 different indices trying to decipher whether the fifth wave was complete or not, and basically all I accomplished was to give myself an absolute monster headache. I'll just have to take another look after Wednesday's session.
Before we cover the future, though, a quick look at the recent past. Certain readers who don't pay much attention seem to think I've been looking for lower prices recently -- but since the 1307 level was back-tested at the end of January, I have been looking for higher prices virtually every day. At one point, I did suspect that a top might be in at 1333, but I also expected price to retrace most of that decline from 1333 to 1307 -- my target retrace was 1328, so there were only a few points missed on the upside there.
After 1333 was subsequently broken, I have remained in anticipation of higher prices -- and while there have been some adjustments to the extremely short term projections (not all of which were successful) the preferred count hasn't changed at all since February 8.
For example, here's the chart from February 9, which I'm sharing because it illustrates why Elliott Wave remains a key tool in my arsenal. When a system allows you to clearly and accurately predict not only a reversal, but also the reversal off that reversal, it's a pretty good system.
Click to enlarge
It seems that some people may get confused by the indicators and warning signals I share, and neglect the upward projections as a result. I try to deliver all the relevant information I come across after each session, and then do my best to draw some type of conclusion from it. Hopefully, it's not too overwhelming for most readers.
Anyway, moving forward; here's the updated 10-minute chart for the S&P 500 (^GSPC). As I stated earlier, I am uncertain if the fifth wave has now unfolded in its entirety or not. I still feel that the SPX "should" break the 2011 highs, due to the Dow Jones Industrials (^DJI) and Nasdaq Composite (^IXIC) having done so, but I'm certainly not smarter than the market.
Click to enlarge
I also want to share my current view of the bigger picture, lest readers become confused as to what type of top I'm looking for here. At this stage, I'm only anticipating a correction in the 4-7% range, though that target could certainly change depending on the shape of the initial leg of any forthcoming decline. There's still an outside chance it could turn into a much deeper decline, as illustrated by the alternate count.
Of course, this is all assuming the market ever corrects again. This rally has gone on for a long time, and few people still alive have ever seen a correction as deep as 5%. Hopefully it doesn't incite mass panic and suicides.
Click to enlarge
The final chart I'd like to share is a system that's been very reliable at picking bottoms in the Volatility Index (^VIX). For new readers, this indicator compares the ratio of the VIX, which measures one-month volatility, to the VXV, which measures three-month volatility. When the ratio becomes too low, the VIX is usually due to bounce. Sometimes it's only a small bounce, sometimes it's a big bounce -- the indicator can't predict magnitude. But it's 11 for 12 at predicting bounces.
I'm not sure what the correlation may be, if any, to the last time this indicator gave three signals close together like this, but I've highlighted the last occurrence on the chart anyway. VIX is shown in the bottom panel.
Click to enlarge
In conclusion, the SPX has reached the wave 5 target zone, and if the market is ever to have another correction in our lifetimes, then this zone would be a really good place to start. The VIX indicator may lend some credence to that view. I feel like a broken record with the trend line warnings, but the song remains the same in that regard: until the up sloping trend lines are broken, there's still no reason for bears to get overly excited. Trade safe.
This article was originally published on Pretzel Logic's Market Charts and Analysis.
Follow the markets all day every day with a FREE 14 day trial to Buzz & Banter. Over 30 professional traders share their ideas in real-time. Learn more.
Before we cover the future, though, a quick look at the recent past. Certain readers who don't pay much attention seem to think I've been looking for lower prices recently -- but since the 1307 level was back-tested at the end of January, I have been looking for higher prices virtually every day. At one point, I did suspect that a top might be in at 1333, but I also expected price to retrace most of that decline from 1333 to 1307 -- my target retrace was 1328, so there were only a few points missed on the upside there.
After 1333 was subsequently broken, I have remained in anticipation of higher prices -- and while there have been some adjustments to the extremely short term projections (not all of which were successful) the preferred count hasn't changed at all since February 8.
For example, here's the chart from February 9, which I'm sharing because it illustrates why Elliott Wave remains a key tool in my arsenal. When a system allows you to clearly and accurately predict not only a reversal, but also the reversal off that reversal, it's a pretty good system.
Click to enlarge
It seems that some people may get confused by the indicators and warning signals I share, and neglect the upward projections as a result. I try to deliver all the relevant information I come across after each session, and then do my best to draw some type of conclusion from it. Hopefully, it's not too overwhelming for most readers.
Anyway, moving forward; here's the updated 10-minute chart for the S&P 500 (^GSPC). As I stated earlier, I am uncertain if the fifth wave has now unfolded in its entirety or not. I still feel that the SPX "should" break the 2011 highs, due to the Dow Jones Industrials (^DJI) and Nasdaq Composite (^IXIC) having done so, but I'm certainly not smarter than the market.
Click to enlarge
I also want to share my current view of the bigger picture, lest readers become confused as to what type of top I'm looking for here. At this stage, I'm only anticipating a correction in the 4-7% range, though that target could certainly change depending on the shape of the initial leg of any forthcoming decline. There's still an outside chance it could turn into a much deeper decline, as illustrated by the alternate count.
Of course, this is all assuming the market ever corrects again. This rally has gone on for a long time, and few people still alive have ever seen a correction as deep as 5%. Hopefully it doesn't incite mass panic and suicides.
Click to enlarge
The final chart I'd like to share is a system that's been very reliable at picking bottoms in the Volatility Index (^VIX). For new readers, this indicator compares the ratio of the VIX, which measures one-month volatility, to the VXV, which measures three-month volatility. When the ratio becomes too low, the VIX is usually due to bounce. Sometimes it's only a small bounce, sometimes it's a big bounce -- the indicator can't predict magnitude. But it's 11 for 12 at predicting bounces.
I'm not sure what the correlation may be, if any, to the last time this indicator gave three signals close together like this, but I've highlighted the last occurrence on the chart anyway. VIX is shown in the bottom panel.
Click to enlarge
In conclusion, the SPX has reached the wave 5 target zone, and if the market is ever to have another correction in our lifetimes, then this zone would be a really good place to start. The VIX indicator may lend some credence to that view. I feel like a broken record with the trend line warnings, but the song remains the same in that regard: until the up sloping trend lines are broken, there's still no reason for bears to get overly excited. Trade safe.
This article was originally published on Pretzel Logic's Market Charts and Analysis.
Follow the markets all day every day with a FREE 14 day trial to Buzz & Banter. Over 30 professional traders share their ideas in real-time. Learn more.
No positions in stocks mentioned.
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