A little bit of stream of consciousness for you today. My basic analysis from yesterday remains unchanged. I think it’s more probable that we go up rather than down, but there of course is at least one structural risk that remains intact. We of course could look back on that little structure in a week and say, “Ah, I see that must not have been a triangle—of course the market wouldn’t repeat itself exactly like that”).
But, let’s look over some things:
$ES is in a small bull pennant here, perhaps consolidating the energy it needs to break the downtrend line. It may even go as low as the orange line (for “equal legs”) or as low as the orange box (typical depth of a “2” here and prior trend line retest). Both of these are marked by the green arrows. Lower than those and I would begin to become concerned.
The $VIX has broken out of the big bad wedge (blue) again. That should be sort of crashy for the markets, however: we’ve now poked out once, and broken out twice. There is a possibility that the more we mash through that structure, the more the market is signaling that it is done with that structure and is moving on to a new one (see the next chart below).
Two charts, close and far. We are re-approaching the Great Sven Wedge on the $VIX from above. We’re backtesting a bullish breakout on it, and I have no way of knowing what will happen from here. I just want to alert you to it. If it becomes a false breakout, great, equity markets can moon. If we actually do launch, it will be a crash of some kind, I would suppose. I’ve posted a lot of bullish charts lately, and my bias is bullish here and I have many reasons to hold that view, but this pattern does contradict that, as it stands now, broken out.
My point is: don’t necessarily not be hedged. I don’t know and cannot know what’s going to happen, though I lean to the view that it will be a false breakout. I absolutely could be wrong about that. Here’s the close-up:
As noted in this article on the $VIX, I think the most probable course (you’ll see that claim made at the very end of the linked article) for it is not Armageddon, but rather, a spike that becomes muted. I think today was the spike. I drew some fine crayon work for that last article, and I will add to it today some additional crayon work, the purple channel that may be forming now.That sort of fits in with the orange imagined path I laid out before.
The large $VIX wedge has broken out:
Though many of the individual names are faring well, I have been expecting a big bounce in the indexes, and soon. Until we get those, here is a short-term $VIX target based on structure. I still expect the indices to not fall in a straight line and to get a substantial relief rally soon, but until then, there is this to deal with:
And the worry here of course is that the blue wedge breakout sticks. I still lean to the view that it will not, but we will have to see when we get there.
Let’s talk about the $VIX wedge.
Many of us watch the $VIX with some care. After all, studying its chart has often been a good source of intelligence despite what detractors of this behavior continue to tell us (and continue to be wrong about). So what do we have now? We have the mother of all wedges coming, it would seem, to its conclusion. That maybe should scare the living shit out of all of us. It may be a reason why the indexes appear to be hedged to the eyeballs (or perhaps being hedged to the eyeballs is painting the $VIX):
My concern is this: though many of us have been in the practice of observing the $VIX for years, perhaps no one has popularized the big wedges it has formed more than my man Sven. And now everyone is staring at it. And I’m not sure just what that is going to do to it. Will it become a self-fulfilling prophecy? Will we all get so scared looking at it everyday that the whole world liquidates its holdings for fear of the wedge breakout we’re anticipating, which then causes it to erupt? Or, like many chart patterns that are a little too obvious, do we all hedge to the gills and have our hedges get completely stuffed?
I see several possibilities: