Thursday, July 17, 2014

VIX Giving More Clues

On May 27th, the VIX index for a second consecutive session settled below prior support at 11.52 from a bullish window opened on March 15th ’13.  This I have long thought should usher in a new period of generally moderate but steady equity gains for a year to 18 months.  Since May 27th close, the S&P index has advanced 3.6% into yesterday’s close, slightly outpacing a moderate rate advance. 

A look to recent VIX activity may help shape expectations further.  A new multi-year low in the VIX was registered on July 3rd.  This low to 10.28 had not been seen since early ’07, and even then, only briefly did the VIX trade in that region.  That July 3rd session created a ‘bullish inverted hammer’ and the index gapped higher the following session, creating a first of three bullish windows.  

An opening high reached only 4 sessions later at 13.22-.23 on July 10th was 28% higher, finding resistance at the 100 day moving average.  That morning I had written that traders should not get over excited about the present prospects for a VIX jump; VIX; Don’t Bet Everyone Else Freaks-Out. 

Yesterday the VIX attempted to close the bullish window created July 3-7, but held above; creating another bullish inverted hammer that has not yet been confirmed.    Early price action in the VIX today finds the index falling from an 11.35 opening to 10.85 as I write, in response to a recovering S&P from an overnight low nearly .7% lower to higher on the day.  

The vacillating price action today is consistent with a higher level of uncertainty that Chair Yellen spoke of in her Congressional Testimony on Tuesday and Wednesday.  A recent quarterly Bloomberg survey ({NSN N8TW7E6JTSEW <go>} shows as many as 61% of respondents believe that the equity market is either ‘close to unsustainable levels’ or ‘already saw a bubble’.  In my humble view, there is greater room for this to play out in a spike higher in equity over the near-term than a bearish correction of any magnitude.  

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