Tuesday, January 28, 2014

Tiring VIX Signals Coming Equity Gains

The VIX, even more that the S&P tells us that market participants have quickly tired of fighting the underlying bullish equity trend.  As of 1:40pm Chicago, the VIX has traded back to 16.11 from a high of 18.99 yesterday.  More importantly, if VIX settles under 16.54 today, it will have given-up more than half of the stunning 3 point open to close gain on made on Friday.  Additionally, a settle there or below will also confirm the bearish implications of the VIX ‘shooting star’ on Monday.  

The S&P, using ESH4 (March Emini future) is 11 pts higher as I write and is creating a ‘bullish engulfing’ pattern.  A question mark remains with a majority of the decline from Friday still left not recovered.  However, if the VIX stays offered into the close, we might expect buyers to emerge and take the S&P back through the mid from Friday (1803).  If that level is bested on settlement today or tomorrow, an ‘all-clear’ signal for buyers will have been given. 

For those who would position outside of the U.S. to take advantage of the potential recovery in global equities, one might consider the Nikkei which settled to 14980 yesterday, 5.8% below the level on January 13 when I had warned of a possible ‘island top’.  A test of 15300 is possible, but don’t hold any long positions if Nikkei is to settle below 14876.   Marty McGuire  

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