Stock Market Viewpoint

Stock Market Viewpoint
Reading the Tea Leaves...

Monday, October 6, 2014

VIX Short Term Futures (VXX) At Major Pivot

Stock Market Technical Analysis

click on image to enlarge

The VXX  (VIX short term futures ETF) has reached a major EMA pivot point.  Looking at the chart above we can see that for the past year the smaller red EMA has failed to up cross the larger green EMA each time it has tried and each failure has produced a multi-week stock market rally.  Last Friday, the VXX had its red EMA line up against the underside of the green line ready to start still another push down in the VXX that would produce a sustainable rally in the stock market.  Now, that VXX juncture breakdown may not be a done deal.

As I mentioned in my previous article, Team Yellen has just a two-day window to get the rally started after putting in a bottom in the stock market last Thursday.  I mentioned that both Monday and Tuesday of this week had to be positive to be sure that the swing trade investors would come into the stock market.  Monday's stock market action is very concerning as we closed negative and showed signs of weakness across the board.  If today had been positive, the tip of the VXX red EMA line would have barely started to curve downward and then a positive day Tuesday would have made a push down starting clearly visible and we would have a likely three-week stock market rally to the recent highs underway.  

However,  Monday closed negative which puts incredible pressure on Tuesday's market action because if Tuesday is negative also, the red line on the VXX could actually start to up cross through the green line instead which has not been allowed to happen in the past year as can be seen in the chart.  If this up cross happens a new wave of selling will hit fast.  The chart to the right is the same chart but stretched vertically to show how the red line is threatening to up cross rather than push down after Monday's negative close.  Technically this VXX EMA merge is a neutral situation with no bias either way but with it compressed into this merge so tight it is predicting that a big move in the stock market is imminent.

Maybe Team Yellen has been waiting to step in behind the scenes at just the right moment and that moment would need to be early Tuesday.  To throw a couple more wild cards into the mix, the Fed minutes from the last meeting will be released Wednesday afternoon and earnings are about to kick off.  Regardless of these backdrop situations, if the VXX up crosses for the first time in a year we will likely see the kind of selling we haven't seen in more than a year.  If it starts to push down instead we will likely begin a multi-week rally in the stock market.

Trade well my friends


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