Tuesday, December 9, 2008

Triangle In The VIX

A triangle has formed in the VIX representing a possible 4th wave in a 5 wave impulse from the May low. As long as the VIX remains above the wave c low, the implication is that we will see a short but explosive selloff once the downtrend resumes. If wave e is labeled correctly above , then the selloff may begin as soon as tomorrow. On the other hand, if wave d needs more work, then it may be another two weeks before the downtrend continues. Currently, the triangle is 31 days in length which gives us an estimated 10 days for the 5th wave thrust. Once wave 5 completes, we can expect a significant intermediate term rally in the stock indexes lasting several months that retraces as much as 62% of the decline from the October 2007 high.

Once the triangle in the indexes is near completion, I will discuss ways to trade it. I am still short the QID and will add other index short positions once wave c up in the indexes is complete as evidenced by a fall below the low of the prior week or a macd sell signal.

Today's rally in the Qs reversed almost exactly at the downsloping trendline connecting the highs of 10/14 and 11/4 so any significant breakout above today's high may mean that this rally is going higher and the triangle interpretation is invalid. The action over the next two days is key.

2 comments:

dave said...

" I am still short the QID"

I assume that you mean that you are long the QID.

Btw, that short & intermediate term view is wholly consistent with mine but obtained through other methodolgy.

I have a profitable long DIA position that i took late today that i will sell tomorrow unless we accelerate across the downtrend line. I will probably buy put options BEFORE i sell my long position.

Regards,
dave

dave said...

In terms of the VIX triangle a-c-e uptrend line, we are as tight to it as being buzzed under the chin by a Roger Clemens fast ball. There is no more negotiating room left. We have to start moving up in the VIX triangle and down in the mkt tomorrow. Push comes to shove.

The first support and difficult area for us Decmember bears is that the 20 Ema's have curved upwards.

Regards,
dave