The vix dropped further than I expected this week but it maintained its supportive base and rebounded strongly after the jobs report on Friday. In light of this drop-bounce action, I think a repeat of the Feb or Oct 2018 market mini-crashes is still possible over the next two months. Pin pointing the exact date is extremely difficult. However, we can see in my chart that the technical factors are similar. There is an initial setup period where the fear & greed reading shows waning greed, followed by a fairly large rise in fear, another greed peak, then a much deeper rise in fear. During this same period RSI also plays out a similar pattern. (We do need to keep in mind that this time around there does not appear to be the same RSI divergence on the daily chart in the final setup phase. This could be a sign that it will not play out the same way. At the same time, if we dig deeper into the sudden vix drop week of July 1st, we will see that there was actually extreme divergence at the 1 hour interval).
If the chart pattern does play out, following the rule of alternation, my bet is the next mini-crash or real crash will be more similar to Feb 2018 than Oct; and could start as early as July 8th. In fact, at some point we should reach *real* capitulation which was not observed in either of the previous mini-crashes.
Finally, keep in mind that we could be approaching the most powerful segment of an Elliot primary degree 4th wave; or, even worse, the start of an Elliot super cycle 4th wave. Although I like to play my cards at shorting, a conservative and protective approach to money management is probably best at this point.
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As of today's market rally, the blue window period should be nearly complete, provided that it does not drop past the green window low of 12.1. I suspect the hype about rate cuts is merely "hype" as Powell never said once that they plan on cutting rates as early as July. I also fail to believe a rate cut would come without a significant decline in the market first. When the truth begins to sink in, then the vix will be free to launch.
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Interestingly, the vix futures jumped from 13.1 back to 15.2 over the week. More manipulation? This move again raises the probability of my idea.
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The base at 12.1 has held and vix is rising. Fireworks could begin at any moment's notice now.
Currently this ideas seems like it is about to fail as the vix continues to be driven lower. Under 12.1 and it is more likely the market will continue to defy gravity for the weeks or months ahead.
PaulDeep19131
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Great information. Very informative.
IMO when you're talking about leveraged funds, particularly the TVIX since it mainly shifts on negative volatility, its rarely ever a good decision to go long and hold it. All it takes is one day to hurt your bottom line and its game over. Similar concept for rare metals.
Volatility is never linear and for that reason I would never hold TVIX longer than 3 days unless you're incredibly confident of something extraordinary happening, like a war (or protests, etc), of some sort, in which the market would all of a sudden sell off and induce extreme volatility. The S&P is one of the more stable indices in the world and for that reason it takes unusual news to cause volatility which is another reason I would never hold it for weeks and months. If it drops off slowly, even if long-term, that strategy of holding long still isn't a good one compared to other strategies.
One thing to be weary of that is incredibly important is I think its pretty obvious at this point given the June jobs report that the market will try to slowly sell off until Jerome speaks in-front of Congress this week. If he hints at a rate cut, we likely rebound. This is likely exactly the reason we are in the red today about 0.45% rather than mirroring the Chinese market at -1.5%+. If he doesn't hint at anything specifically, the market will likely be bearish - will give back 5-7% on the overall market - and continue to slowly sell off until his meeting on July 30/31. At that point he'll likely cut and we basically re-enter the same position as we were in last month where we rebound strong and make new highs.
The interest rates are already pretty low and he can't cut rates forever, which leads us ponder where will be in early 2020 when the market has accounted for 2-3 rate cuts, and at that point if he cut 2-3 times interest rates would be 1.5% or lower which leaves no leverage to stimulate the market when we really need the stimulation.