Thursday, August 12, 2010
Extremely critical pivot point tonight...
click on image to enlarge
I am foregoing all of my regular charts tonight to focus on one thing only, which is at a historical pivot point this evening. That is the Vix volatility index or also known as the fear indicator. The stock market is all about fear versus greed and it swings back and forth from one emotion to the other. The vix lets us track it visually so we can see changes in market direction starting to happen.
When you click on the above image you will see that I have posted a 4 month chart of the S&P index on the top and a chart of the vix below. The lower chart is to be analyzed first because changes in it causes changes in the market chart above. There are three sizes of lines: thin, medium, and thick red and green lines. The thinnest red lines are minor vix sell signals, the medium red lines are medium vix sell signals, and the thick red lines are major vix sell signals that you can see if you study the vix and its channels closely. The thin, medium, and thick green lines are small, medium, and large vix buy signals. Each bar represents 2 hours of trading and the start of each Monday is marked with its date.
A few of the major pivot points:
4/26/10: we left the bullish brown downhill channel and popped back up into the bearish black channel which is the largest sell vix signal possible, thus the thick red line. A 7 week major down leg in the market followed.
5/14/10: the vix crossed from below the center line to above the center line forming a medium sized sell vix signal for the vix and thus the medium red line.
6/22/10: the vix bounced up from the lower line of the black channel issuing a medium sized vix sell signal.
7/1/10: we got a shooting star candle that kept us from crossing over the center line of the black channel and also kept us from breaking out of the bull's downhill brown channel which is a large vix buy signal and thus the thick green line. The market went up for the 6 weeks to follow.
7/9/10: we slipped out of the bearish uphill black channel for a confirmation signal.
7/13/10: the vix formed a tiny ascending triangle meaning fear was going up for a few days and I marked in the first tiny red vix sell line.
7/16/10: the vix popped up into the black channel briefly so I marked in a small red vix sell line there.
7/19/10: we slipped back under the black line channel and pushed down from underneath so I marked a medium sized green vix buy signal line. At this point in time I could see that we were establishing a downhill channel and I drew a blue channel. That was also the day of my first post where I stated that they were trying to turn the market back up in a convincing way here.
7/21/10: we hit the top of blue line fear channel and turned back down so I marked a green vix buy line above it.
7/27/10: The vix / fear bounced up from the lower blue line meaning fear was going to start heading back up so I marked a small red vix sell line and the market sold for a few days.
7/30/10: the vix / fear bounced down from the upper blue line indicating fear was heading downward again so I marked a small green vix buy line and the market went up for a few days. After that the fear stayed at the lower blue line which is the vix sell signal line of the blue channel but kept hugging it instead of crossing to the upper half.
8/10/10: the vix jumped up past the center point of the blue channel and I marked in a small red vix sell line.
8/12/10: this morning at the open we jumped above both the blue bullish channel and the brown bullish channel but pulled back into both during the first 30 min. of trading. I went ahead and marked a thin red vix sell line then because we momentarily jumped out of both channels.
8/12/10: at today's close the vix closed exactly on both the intersection of the blue and brown channels. If the vix trades above that tomorrow and closes above it I will be drawing the thickest red line vix sell signal tomorrow night. If the vix falls tomorrow, I will be drawing medium green vix buy line. The reason I wouldn't draw a thick green vix buy line is because, fear can only go down just a little to its lower blue line before it could bounce back and turn back up again which would mean another thin vix sell line. If within the next couple of days the vix breaks out to the downside of the blue channel, I will find the fattest green marker I can find and proceed.
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