Chart update: You can see that when the 5EMA dropped down into the froth zone in mid-January that the markets did indeed begin a decline as the chart predicted. I've added a third yellow line across the top at the point where markets have reversed in the past. That area is around 19 and with the 5EMA currently at 17 this suggests a few more down days ahead, though certainly not without a few rally days thrown in.
This is simply the 5EMA set up the way I like it but it's just the 5EMA of the daily VIX meaning that any daily chart of the VIX with a 5EMA will give the same reading. I just prefer this set up as it's more graphic.
Caution and caveat: This chart has worked well with the current parameters since early 2012, but in late 2011 the 5EMA rose to 40 +/- before the markets reversed so there is the chance given the current market environment that the 5EMA may rise well above the 19 area before markets reverse. Should that happen, then the parameters would need to be adjusted. But we're not there yet.
GL
Comments
SimGlenn
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Curtis - Now that the mini correction seems to be over, I've gone back to re-read this analysis. You really nailed it well here so now I have a new TA tool I can use. Thanks much - Glenn
JamesPowell
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that is pretty cool, but looks like it works better for longs so far. There are a few home run longs on that chart for sure. The shorts were timely but not as long running as the longs. Interesting that's for sure.
9pin
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+1 Great Chart! worked to a tune this past week, much appreciated... 1 look tells one when to be cautious, as well, when to start setting up longs.
SimGlenn
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Excellent Curtis. I was trying to create an SPX/VIX overlay last night but I don't have the tool. Thanks for doing this. It looked like the VIX had peaked Monday 1/27, but then made a comeback on Friday, but failed to surpass the previous high. The question I have is...Does the VIX trade this past week give any indication if the VIX has peaked, and what should we look for in that index?
Thanks - Glenn
CurtisM
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I am watching to see if the VIX can push into the mid-20's as that has been where it has turned in the recent past but I'm going to need to see some fear in the markets at the same time and there is none now. Even with Friday's late sell off, P/C ratio closed at 0.86 and that is just too bullish. During the Sept-October decline, the P/C ratio pushed above 1.00 numerous times. Fer instance, on 9/20, after a 12pt drop, the P/C ratio rose to 1.05. Since the current decline began, the highest P/C reading so far came this past Wednesday at 0.97 meaning a little bit of fear but not much. By comparison, during the Sept-October decline we had several P/C readings above 1.00 with the highest being 1.30 on October 9th, which proved to mark the bottom of that decline. So, if in the week ahead, the VIX should push into the low to perhaps mid-20's and we get a sympathetically high P/C ratio reading or readings in the 1.25 or higher area, then those type of readings would indicate that fear has entered the markets in a big way and that is usually what it takes to turn the markets in the other direction. Watch both of these in the week ahead.