VIX Sell Signal

A few weeks back I talked about the VIX and how it had slowly established a new rising support line starting at the end of 2018. Which in turn ties directly into last week’s post in which I suggested that the recent rally in equities was one of the most feared and perhaps most hated as well.

The underlying idea here is one of market sentiment. And it’s gradually become more skittish over the past 18 months, as depicted by the rising floor from which IV jumps higher were launched in August of 2018 and April of this year.

Now clearly the recent stab lower to the VIX 12 mark seems to be following the same script as it now has bestowed us with a  a brand spanking new sell signal.

In case you are new here or have forgotten: For a confirmed VIX sell signal you need 3 events:

  1. A close outside of the 2.0 Bollinger Band (20-day SMA) – check!
  2. A close back inside the 2.0 BB – this issues the signal – check!
  3. A higher close back inside the 2.0 BB – check!

Once you get those three events a major reversal usually occurs within the next week. The sell signals used to be far more accurate than the buy signals, but in the past eight years or so that relationship reversed, indicating that its accuracy is dependent on the ongoing trend.

Given the above we are now looking at a confirmed technical equities sell signal. And in terms of seasonal statistics it has signaled at a favorable time – only August would have offered more bearish bias.

As you know this crusty old market megalomaniac never blindly jumps on any sell or buy signals and – even worse – he stubbornly insist on price confirmation.

Which may not be too far away as a breach through the ES 2956.25 spike low would suggest that we are heading into a mid summer market correction. Until that happens however the long setup I posted yesterday remains active.

Update on King Dollar – it’s recovered much of the ground it gave up post Fed announcement and I just raised my trailing stop to the 1.5 mark leaving it sufficient room for a run higher.

Of course my joy may be short lived as Fed chairman Jerome “Kryptonite” Powell has not one, not two, not three, but FOUR opportunities to jaw bone the Dollar lower this week.

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