Houston, We May Have A Problem

We’re past the half-month mark and since the current gyrations aren’t exactly conducive to anything outside of playing the swings I thought it would be a good idea to go over our momentum charts. What I found is rather worrisome on a medium to long term basis, albeit there is grounds for optimism more short term.

 

Let’s start with the latter and then we’ll zoom out and review the long term picture. On the surface yesterday’s bounce and continuation in the futures overnight looks positive. However a quick glance at the chart above and the increase in realized volatility is palpable.

NYSE volume does not reflect much confidence and although I do believe that continuation over the next week has reasonable odds (i.e. 65% plus) I am not jumping into long positions here.

SPX:VIX started to point higher yesterday – let’s see if this continues.

Okay, so the first glaring signs of trouble occurred when a bona fide VIX Buy Signal was almost disqualified. My rule is that a breach > the recent spike high on the VIX must be breached. Which means a push in the VIX to > 24.75 would open the door to much ugliness.

ROC on the VIX is also concerning. What usually happens is a drop to -40, a punch higher > the 0 mark followed by a correction and then a drop back to < the 0 mark. However over the past few months ROC has remained stubbornly > its 0 mark and is now pointing higher. This usually does not end well.

Much more waiting below the fold for my intrepid subs:


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