The setup for this is for VIX to spike up 5 points.
Once VIX spikes up 5 points and then falls back down by 75%, the storm has passed and the BUYERS who stepped in at those lower levels can be viewed as BIG MONEY or SMART MONEY since they were buying low in a mini-crisis.
However, after VIX comes back down, the market is now a bit overbought and then the buyers eventually get TESTED to make sure they are real or that they are BIG.
It's happened this way for a long time. A year ago I posted this, but I don't keep posting every follow up signal. The one I did post suggested that the SPY needed to drop back down to 194 to retest those buyers, but we still haven't done that.
We have had five more signals and they all worked very nicely and the current one is still setting up since VIX hasn't fallen back down 75% from the recent spike up yet. VIX must hit 14 and when it does, that's the level that needs to get retested.
Maybe this doesn't look like rocket science, but it is another way to look at VIX and the buyers who buy when VIX is HIGH and how the market retests those buyers in the future. The market is always trying to see who is in control. The concept is basically that "When VIX DROPS off of a spike, those buyers will get tested".
If that isn't clear, it will be at a later date when I post again on this topic.
Cheers,
Tim 3:46PM EST Monday, July 13, 2015
Comments
timwest
⋅
On July 13, the VIX retraced its spike by 75% and generated a KEY SUPPORT LEVEL for the S&P500 (SPY @ 109.64) when VIX returned to the 14-level. What we look for is a return to that price and for indications of a loss of momentum to the downside. The SPY is falling towards this level as I type and wanted to point out this important level.
MarkLangley
⋅
Thank you Tim as always the necessary time will be required to study your publication , always appreciative
timwest
⋅
Thanks Mark. Maybe I can do better to explain what I am saying with this indicator/signal/setup. I'll see if I can do better. Feel free to ask questions.
azn.knight
⋅
Thank you for posting it. At least this way of looking at VIX is absolutely new for me today. I'm still a newbie and looking forward to personally check this method out. Just wondering whether this method can be effectively applied with the SPDR Gold trust as well or not.
timwest
⋅
Since VIX measures the Volatility of S&P500 Stock Index Options, the signal relates to the S&P. Using Volatility spikes and retracements should be usable in any index because of the logic behind the reduction in volatility is the "strong side of the market".
AndrewMills
⋅
I objectively do not agree that the storm has passed. The storm may have calmed for a moment, but once the S&P tests 213 again for the 3rd time, I feel it is going to retract quickly. The problem is, if the price (value) rises above that level, the price is even further away from the mean, and into uncharted territory where no one feels comfortable considering all of the headwinds and geopolitical events going on. Greece STILL may not finalize this deal. Everyone involved feels this is a bad deal, the IMF even stated that they need debt restructuring. Global debt is hunting down global growth as every day goes by. Global debt is accelerating, while global growth is decelerating. THAT'S A REAL PROBLEM. That's a ship that is taking on water, and it's a matter of time that it capitulates... I feel that when this happens, and the perception is realized that the global debt is all consuming, precious metals will have their day. If you look at precious metals now, the price action is much like a tsunami, the tide gets sucked out before the flood comes in. That's I feel is what is happening right now. The US Dollar getting stronger doesn't always imply gold going down. Quite often in history, the dollar and gold moved in tandem. The strong dollar is going to hurt our exports, which will also weigh on the economy. Sure, we may be able to buy more and consume more as the stronger dollar is good for American consumers, but if you look at the velocity of money... the consumer is NOT spending. Another indicative problem is the housing market. Housing starts are consisting mostly of RENTALS, not individual homes. Add 46M on food stamps (granted there is rampant abuse, maybe it's like 35M), 1.3T in student debt, 18T in balance sheet debt, 57T in off balance sheet debt, 300T in derivatives (if not more), global debt being 200T, 5 banks each have 40T in derivatives, and now we are signing 8 year auto loans... which just goes to show most people cant even afford cars.
WE GOT BIG PROBLEMS.
timwest
⋅
I think stocks could suffer too, but you are giving long term fundamental arguments when I'm highlighting a short-term money-flow setup. Stocks can rise in the face of bad news if there aren't enough sellers. Stocks can decline in the face of good news when there aren't enough buyers. Weighing out what people currently are doing in the market on a week-to-week basis is what this level of analysis is all about. My long term forecasts are published here too. Have you seen those forecasts I've made at the beginning of each year?