Stock Market Viewpoint

Stock Market Viewpoint
Reading the Tea Leaves...

Monday, May 14, 2012

5/14/12 VIX At the Threshold

Stock Market Technical Analysis Blog

Click on above image to enlarge

 The three charts I posted this evening are of the VIX Volatility Index.  The top left corner chart is weekly bars with four EMAs.  The top right chart is daily bars with the same four EMAs.  The bottom chart is a daily bars trendline chart. 

Starting with the top left chart, we see that the week before last the red EMA started lifting from the green as it did in late July last summer which followed through with a horrendous market sell off which is visible in that chart. 

In the daily set, top right corner, in the past two days the red also being pushed up by the green line EMA.  A troublesome combination for the stock market.

In the lower chart, an even more troubling situation as the VIX has completed an inverse head and shoulders formation shown with the three green sideways marks.  The heavy red line is the VIX 21 threshold which is widely known as the turnaround point for either another rally in the market or the point where the market could lose it, was crossed above today and closed at the high of the day 21.87.  Taken at face value this is a dangerous situation as the inverse head and shoulders is a powerful formation with this one scaling out to where it could easily propel the VIX up to the 30 area.  There is a hopeful situation in this obvious volatility breakout and that is that the VIX closed just shy of its weekly 50 EMA today (shown with the pink line in the upper left weekly bars chart).

This would be an appropriate place for the PPT to step in and give the market some help.  The problem is that over the past week and a half, the PPT has sent its after hours projection markers showing the level they want to take the market up to.  Both attempts however, have produced little more than simply keeping the market from developing any steam in intraday sell offs. 

After the close today, the PPT once more sent out its markers in the after hours charts but at this point a lot of traders will be in a show me state of mind after their last two attempts to help the market just didn't help much.  Nonetheless, the PPT needs to defend the 50 week EMA line but it will only be by their hands as the market sentiment has deteriorated tremendously over the past week and a half.  Actually it has deteriorated enough to no doubt bring in a lot of fresh shorts to the market and we all know how the PPT loves to put on a scorching short squeeze on the market right at the eleventh hour when serious trouble is imminent.  We will just have to see if they have the ability to do so with the market being weighed down so heavily by the euro zone situation right now.

Alan