Monday, January 30, 2012

VIX trend change signal - 01-30-2012

Several days ago the VIX declined more than 47.5% from its Nov 1 high setting the conditions for a trend change.  As confirmation we needed to see an actual direction change.  How do we judged that?  Three consecutive down days seems an appropriate confirmation.  Today was the third consecutive down day on the S&P completing the trend change signal.  Unfortunately, this tells us nothing about how long the change will last.  It could be a week or several weeks.  We do know that such signals occur infrequently (usually 2-3 times a year) and has proven reliable.  Also, not all trend changes generate a signal.

The MA channels generated a sell signal as the inner channel (upper channel line) crossed the outer channel (upper channel line).  The CCI dropped with attitude below the +100 line generating a sell signal.  Finally the MFI is trending down which normally happens at a top.

All the technicals seem to be aligning indicating a potential sell off.  Still the market is holding up better than one would expect.  Here is the SPX:

GL traders

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