VIX Exhaustion?

More than a few traders noted the weird behavior of yesterday's VIX, which actually rose 3.5%, the same % gain displayed by many of the major averages DJ30, SPX, NDX and IWM.
I'll leave it to more VIX savvy bloggers than myself to parse the reasons for this oddity, but the fact that it happened at all is a reason to rethink some of the underlying assumptions about the VIX's contrary predictive abilities.
Leaving that statistical anomaly aside for a bit , the upper chart shows the current position of the daily VIX bars relative to the LR30 channel.
I've highlighted with white circles the reversal pattern that has developed each time the VIX has displayed a similar channel kiss since May.
Whether history will repeat itself by the end of the week remains to be seen.
If I were a betting man I'd say VIX 28 (LR30 channel mean) has pretty good odds.
An alternate scenario is a channel kiss-off to new VIX lows for the year and the formation of a new LR30 channel with a channel mean in the low 20s.
The only technical clue I see in support of that possibility is the brevity of the latest VIX support/resistance/support cycle, which has only lasted 10 trading days.
The previous cycle was 15 days; the one before that 15 days.
BTW, with today's gains the Qs weekly Pivot Impulse Indicator is now flashing an overbought 1.5 reading.

Qs Pivot Bands Update

Here's an update of the weekly bars Qs Pivot Bands that I mentioned last week. We've been tracking this view for almost a year now and over that time time it's provided some powerful clues for impending trend reversals.
If you're interested in how the bands are tracked and analyzed, check out my series of previous posts on the bands as linked above.
The Pivot Impulse indicator (PII), which is a derivative of the bands data has also provided a solid momentum model for the Qs.

The bands have clearly been downslope since week 43 and week 42 on the PII saw it coming. That fact that the PII has dithered around the zero line, as opposed to running up to the 1.5 reversal level is reflective of the failure of he Qs to achieve an oversold condition in that time frame.

This situation, in conjunction with Monday's (technical) Outlook, continues to raise red flags in my mind regarding the Monday rally.

Keep in mind that the pivot bands and PII are based on weekly bars and as such display an inherent lag at the same time they filter out the noise of the daily bars. The bands and PII are part of my longer term trading toolbox and I use them primarily to gauge the relative safety of my various premium decay positions.

I developed a simple short side only daily bars version of the PII back in February, with respectable performance results over the 16 month test period.

As time permits I intend to revisit the SD Signal Line coding, add a long side component, and run a performance update.

Going with the Flow

Turns out my negative outlook for yesterday was a wee bit premature.

Hey! I said it could go either way!

And always keep in mind my Bucket List..............

What's interesting now as we progress into the week is that the VIX is clearly knocking against serious oversold levels on the daily chart, whereas, Monday's post saw the VIX daily set at the LR30 channel mean.
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I'd been watching GE closely going into yesterday's open as Friday's 30 minute bars looked like a possible double bottom (Dolly) pattern.

The possibility of entering GE just prior to earnings was definitely a caution to me, but with the firing of a BUY on the NYAD at 10:18 and a GE BUY signal already underway since 10:16, I went long.

That turned out to be a good decision as the entire market surged up and GE made a nice run into the typical noon divergences.

However, always the nervous Nellie and unable to shake my continuing reservations about the validity of the rally, I exited with the parabolic Sell right at 12:00 for a respectable .42 gain and 102 minutes of exposure. Not close to my expectation of .01/minute but, really, the longer you let these things run, the less likely that level of return.

Also worthy of consideration: by noon GE had gained almost 6% off the open, a number achieved only 1% of the time, so the odds were against much of a further push for the day.

When in doubt. . get out.

Monday Outlook

This is a continuation of last week's Time Perspective post.
In today's case I'm looking at the disparity of the daily and weekly bar signals.
Above is the VIX and, depending on whether you believe the daily or weekly signals, the odds favor a bull run (daily) or a really scary bear run (weekly).

This same daily/weekly disparity applies to each component of my little ETF basket.

To add a little spice to the sauce, some big names are reporting earnings this week, and likely to spike volatility.

I typically lighten up longer term positions on expiration week when earnings season is in full bloom, or fully hedge those positions to protect against those gut wrenching implosions that often follow negative earning surprises and guidance lower.

A successful trader and hedge fund manager once offered me a little nugget of insight that has served me well over the years: If you wouldn't buy a stock/ETF/future at its current chart position, why would you continue to hold it long? While this attitude is clearly reflective of an active trading approach to the markets, it's a perspective that works for me.

That being said, after an initial pop at the open momentum going into expiration week remains negative and with earnings season cautions and spiked volatility, I'm looking for the Qs to take a another hit this week with 34 as the first downside target.

Base Building

Today's price action was uber narrow range, and from my daytrading perspective, offered few tempting entries.
Most of the indices showed dojis or spinning tops as the formation of the day and, following my stated bias for the bearish side today, the slight pop at the open quickly faded down to yesterday's closing levels and hugged the VWAP line for the bulk of the day.
What's today's action did change was the look of the lower and midpanel technical indicators.
Although today's price action was essentially neutral the technicals are showing bottoming patterns and an upswing in momentum on the MACD histogram, RSI2 and the 3&7 MAs.
An issue of concern is the brevity of the latest bear cycle and it remains to be seen if we are going to see a rally to the MACD zero line and above.
With the kickoff of earnings season, expect volatility to pick up for the next couple weeks as reality kicks in. For those looking for an excellent prognosticator of the earnings game, here's a link to Zack's, one of the best IMHO.

The Time Perspective

Here are 4 views of the Qs.
Top to bottom: 2 minute, 10 minute, hourly and daily bars.
The same technical settings are applied to each chart and, it should come as no surprise, there's a clear disparity of momentum depending on the time frame.
Negative on 2 minute and daily bars.
Positive on 10 and 60 minute bars.
Those momentum assignments are based on the position of the parabolics, the LR7 and the TSF10+2 indicator on each chart.
In the coming days we'll monitor the performance of the Qs relative to these indicators to see if a particular view offers a more reliable forecast than others.
My gut feeling is that we haven't seen the lows of this swing cycle yet so I'll be particularly interested if a short term rally develops on Thursday and Friday.

VIX Update

Here's a quick look at the current VIX levels on both daily and weekly bars.
I've overlaid the price chart with my usual toolbox of technical indicators to help my feeble old mind put some perspective on what's likely to happen next.
Since last Tuesday's VIX update when the VIX was riding the LR30 channel mean, it has now run back up to the upper channel band.
What's interesting, and a bit confusing, is the relationship of the LR30 channel to price action when comparing last week's chart to the current. Whereas, last week's reading of 25.79 was shown as dead on the LR30 mean, this week's view of 25.79 shows it at the lower LR30 channel band. This is, of course, the result of the changing scale that has developed within the last week. Although the behavior of the VIX relative to the channel is the same week to week, the absolute position on the channel has changed.
This same disparity in views is noted when referencing the MACD histogram, although the RSI2 remains true to form.
These variations in relative position of technical indicators over time have been explored extensively in previous posts when using the VIX or VXN in conjunction with the Qs to gauge momentum and identify high probability trade entries.
Based on this brief snapshot, it's clear that the readings of many technical indicators are both relative and dynamic and need to be carefully considered as such.
Finally, here's a very thoughtful reflection from a trader who's developed his own perspective.
It's fairly lengthy, but it's sincere and insightful for anyone wishing to become a better trader.