VIX Analysis November 2014 (D,M)
Created on Saturday, 01 November 2014 21:44
Written by Austin Galt
The Volatility Index (VIX) spiked up to a mid October high at 31.03 which blew away previous resistance levels. That was just the entrée. It’s now time to digest that and get ready for the main course. Let’s pick over the monthly and daily charts.
VIX MONTHLY CHART
We can see the big candle wick for October took out some major previous swing high levels. Many stock market bears were getting all giddy over this and rightly so. But this is just a taste of what is to come.
The Parabolic Stop and Reverse (PSAR) indicator now has a bullish bias after the dots to the upside were torched. As often happens after this, price then comes back to test the support given by the dots on the downside. The dots currently stand at 10.80 and I seriously doubt price will go below there now.
The Moving Average Convergence Divergence (MACD) indicator is bullish with the blue line above the red line after showing multiple bullish divergences into the final low back in June. Things look ready to pop here in the coming months.
The Momentum indicator also showed multiple bullish divergences and it now looks primed for a big move up.
I have added simple Elliott Wave annotations which show the all time high of 96.40 in 2008 to be the end of wave 1. The recent June low at 10.34 was higher than the previous major swing low of 8.60 set in 2006. So that is a higher low and can be considered the end of wave 2. That implies wave 3 is already underway which can be expected to eventually take out the all time high. Get ready to hold on to your hats folks!
VIX DAILY CHART
The Bollinger Bands show price at the recent high trading well above the upper band. This often calls for some regression to the mean and that is exactly what looks to be occurring now. Perhaps price will eventually put in a higher low around the lower band.
The MACD indicator shows the averages diverging quite a lot so a move back to “normality” looks on the cards. A rally in price should do just that although I do favour any rally being fairly muted.
I have added Fibonacci retracement levels of the move up from the June low to recent high. Pullbacks at the start of new bull trends often show deep retracements and I favour exactly that here. I am looking for price to get back to around the 88.6% level at 12.65.
I have drawn a green highlighted circle which shows a gap. The high of the gap is 13.13 while the low is 12.61. I am looking for this gap to be filled before the next major leg up commences. Interestingly, this gap is right around the 88.6% Fibonacci level.
Price is now just above the gap but I doubt it will get filled on this move down. I favour price rallying first before coming back down again and it is then that I expect the gap to be filled.
From the monthly analysis, it appears that major wave 3 up has already begun. The recent move up looks like wave 1 of this wave 3. That was just the appetiser - the French Fries move. Now we await the wave 2 low which may take a while to unfold and I suspect we are in the middle of an ABC correction with the B wave ahead of us. Then once the wave 2 low is in place we can expect minor wave 3 of major wave 3 to start – the Big Mac move. Mmmm!!!