VIX Analysis December 2014 (D,Y)
Created on Thursday, 27 November 2014 02:02
Written by Austin Galt
Let’s quickly look at both the big and small picture of the Volatility Index (VIX). Firstly, the big picture yearly chart.
VIX YEARLY CHART
The Relative Strength Indicator (RS) is showing a pattern of higher highs and higher lows indicating strength is building in price while the Stochastic indicator is oversold so a move up would not surprise here.
I have added some simple Elliott Wave annotations which show the spike high in 2008 at 96.40 to be the end of wave 1. The wave 2 low is probably in place at this year’s low of 10.28. If there is lower to go then price should not go below the 2006 low of 8.60 which is denoted by the horizontal line.
Once the higher wave 2 low is in place, if it isn’t already, then a big wave 3 move up should occur that busts into all time highs. This should happen alongside the coming plunge in the stock market.
After that expected stock market plunge, I am looking for a move to new all time highs which would see the VIX come back down in a wave 4 corrective move.
Then the VIX should zoom back up to new all time wave 5 highs in the years following as the stock market begins the mega-bear plunge as laid out in the Dow analysis.
This wave 5 high would also set up a “three strikes and you’re out” topping formation with three consecutive spike highs. It all sounds too easy!
If my analysis is correct, then the end game is still around a decade ahead of us. Plenty of time left to worry about that.
Let’s bring it back in tight with the daily chart.
VIX DAILY CHART
I have drawn a green highlighted circle which denotes a gap that I’ve been expecting to be filled. Done.
Price is now edging ever lower as it searches for its next major low. Rallies are weak in line with the strong downtrend.
There looks to be a “three strikes and you’re out” low formation setting up. That consists of three consecutive lower lows. The second low looks to have just formed. Then after a rally we could expect price to come back down for the third and probably final low.
There appear to be bullish divergences setting up on the lower indicators being the RSI, Stochastic and Moving Average Convergence Divergence (MACD). A triple bullish divergence would be especially nice. Let’s see.
There is a gap to the upside which can be seen in the yellow highlighted circle. Once the final low is in place a big move up should occur that sees this gap filled.
Summing up, the VIX bulls are pawing the ground while the bears lick their lips as they devour the last remnants of their meal.