Adding the last couple of posts here for the sake of continuation...
23.11.2002
Due to a break and being busy afterwards, I havent updated vix thread for a long time...now that things getting quite hot maybe its time vix thread updated...first a look back to see what happened and trace the signals VIX has given us so far towards the big rally started in October when dow hit 7200 to yesterday hod of 8880, a rise of 1680 points in a short time, more than 1300 of which in 8 trading sessions...followed by a month of consolidation when dow added over another 300 points...
We also know that many traders if not most expected a bigger market crash as of end of summer especially in October, but to their surprise market responded with a sharp rally, no doubt many of them got caught out on shorts...so we look at vix daily chart to trace the signals its given us about the current rally and try and find out if there are any as to where we may go from here..
Line 6 shows the double top formed in sept 2001 and june 2002, clearly telling us we need to see vix breaking this resistance for bigger market crashes...
We see vix trying again in august 2002 but instead of going for the earlier top it ended up forming a lower high which later in october 2002 turned into a lower double top (line 7)...at the same time if we have a look at the trend line 0 we see a clear R/S switch, another signal that vix failing to make it higher and set for big drops referring to market rises...
Trend lines 1 and 2 also failed to hold vix while res line 9 managing to push it further down...
The major horizontal support line 5 at 30 was the last one failing before the last vix falls and market rises...
This left vix just a bit above another major horizontal support line 3 at 26...following this is line 8 at 22/3 and line 4 at 20...
Considering the way the chart has developed it wouldnt surprise me to see vix hitting 20 before starting any uptrends, however 20-26 level (line 3 to line 4) is the most crowded vix level where it often forms rectengular consolidations, we may therefore first see bounces off line 3 and in between line 3 and 4... also breaking down line 4 at 20 is a hard case and will refer to even bigger rallies if it occurs...also worth to note that both rsi and stochastics are at very oversold areas though no signs of +ve divergences yet...
As for the dow daily chart the 2 things worth to note would be the steep downchannel broken up on Oct 11th signalling the reversal and the head & shoulders clearly broken on the upside on Nov 21st...giving us a target around 9k, as 9k is also a major resistance level, it would be worth to note that the test of it should give us clear signals about further rallies/falls, and best to wait and see how dow handles that level...
Both stochastics and rsi are overbought on the dow daily...
Overall the vix still weak and dow strong and apart from o/s, o/b indicators no signal of reversals yet, still the levels we're entering on both together with the o/b, o/s situations are suggesting consolidations needed at around these levels before further big moves, therefore we are more likely to see retracements as well as advances while consolidating as of next week...as for the widely talked end of year rally to take the dow back to 10k, I think we need to see how it handles 9k first and its best not to get carried away we've already gone up too much too soon anyway, but I still wouldnt discount it if the dow breaks and settles above 9k...
Riz
