Stock Market Viewpoint

Stock Market Viewpoint
Reading the Tea Leaves...

Friday, August 13, 2010

Not looking good...

click on image to enlarge

Most of the day today the trading world was just watching and waiting but in the last hour, the vix breakout  began.  When the vix breaks out of or restests from one major channel line it is a medium vix sell signal - medium red line.  When the vix breaks out of or retests up from 2 major channel lines it is the large vix sell signal and the thickest red line.  If the vix breaks thru a major trendline, it is a small signal when it first crosses, becomes a medium sized signal if we actually close outside of a major channel line and becomes the big vix sell signal if when after crossing it pulls back to the line it crossed and uses it to push away again (a retest confirmation).  The current trading channel, the blue line channel is only a minor channel.

Today we broke out and closed out of a major downhill channel and in addition broke out of the small blue channel we have been in the past 6 weeks.  Since the blue channel is a minor channel it does not count as a 2 line breakout so it is still a medium sell signal. 

This is really serious. This is how the major downlegs begin. Yet you can not ignore the fact that  when  the market is really in trouble the bailout team has been coming in for the save at the last minute, or even after the sell off has begun to intervene and reverse the market. Typically they do their interventions on Monday mornings with a huge cheesy opening gap up. Sometimes it is almost comical watching the financial media scramble to come up with a plausible reason for the monster gap up from out of the blue. Of course everyone goes along with it as long as the music is still playing.

The music has stopped.  They did not step in a couple of days ago when it was necessary to do so. Are the market rescues coming to an end?  Nobody knows.  Monday will be another test of  whether they are exiting the picture on not.  In the past 1 1/2 years I can not think of any other time it was as critical to intervene as it will be Monday morning. 

The medium VIX sell signal can cause the market to be ugly for some time - without a rescue.  This bail out  team has shown a pattern of taking a stand, and if it doesn't work out they seem quite willing to fall back some and then take another stand at a lower level.  If they don't do the monster gap up Monday, they will have to bring the market up the old fashioned way - trading it up - and that has not been working well for them.  The next place they would likely take a major stand at would be if  the VIX gets up to the lower black channel  line in the 33.00 area. If we cross up into that channel that would mark another VIX sell signal - the medium sell signal - the medium red line. If the VIX retests the line the then it would become the big sell signal.  You can count on one whale of a fight at that line. It the bulls and the bailout team prevail at that line and the VIX turns back down then we would have a medium size vix buy signal.

All eyes are going to be on the futures premarket session starting at 7:00 am Monday

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