Friday, August 30, 2013

VIX Supports-ESU Not Ready for Advance

ESU3 (Sep 2003 E-Mini) recovered over the past two sessions from a new 7 week low.  The recovery however has not been particularly impressive.  The open to close decline of 26.25 points on Tuesday was the largest sell-off since June 20th.  Right now, Tuesday’s session is still considered the most ‘dominant’ candlestick, suggesting further declining price action forthcoming.  The bearish implications of Tuesday’s declining price action would be enhansed if ESU3 settles for the third session in a row below the ‘mid’ of the opening and closing prices from Tuesday (1641.375).  This failure to recapture (at settlement) even 50% of the fall from Tuesday within three sessions would indicate a lack of conviction on the part of the bullish contingency. 
                                                                                                                                                    Excessive concern should not be given to over sold conditions because the consolidation since Tuesday will have helped to reduce short term oversold conditions.                                                                                             
Longer term, ESU3 is still under pressure from the ‘bearish window’ which opened between the 5th and 6th of this month of August.  That bearish window also left a ‘island top’ marked further by a ‘double top’ high at 1705 from August 2 and August 5.  The bearish window will remain open and active until the contract (or subsequent contract) settles back above 1702.25.

Finally, there is a potential for a bearish engulfing today if ESU3 settles at or below 1630.25. 

Shifting focus to the VIX Index:
On August 15th I had suggested that a VIX settle above 13.45 would usher in increased volatility and lower equity prices.  Since then, we have seen lower equity prices and rising VIX levels.  The current price action in VIX further supports continued weak equity prices and still higher VIX levels.  A settle back below 15.94 would invite more caution in predicting weaker equity price action.     

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