Mella sent the post below to clients earlier in the month and highlights a critically important charting lesson: How to utilize $VIX and other volatility products to signal not only coming risk moves but also to identify key market turning points. While markets may surprise to the upside and downside volatility patterns often signal the turns well in advance.
Most people think the $VIX can’t be charted. We view this as a myth. Mella has shown over and over again that it can and that it is highly relevant (see also Sniping the $VIX and Technical Setups). That’s we call her the Vixen 🙂
See for yourself.
From a January KISS Report:
So this week I analyzed commodities and currencies and global indices. I also wanted to recap on 2018.
What was key? What told us this huge 20% bloodbath was coming? What could have saved investors and traders survive an 8 trillion dollar slaughter?
Wall Street certainly didn’t. Nor did the multiple gurus on CNBC, Hedge funds, Elliot wave specialist etc. technical gurus or Fintwit. I’m not talking permabears 🙂
Did anyone flag up precisely the worst financial decline since the last financial decline? The answer is no. Apparently this was a complete shock to most.
Please bear with me here. This is not an exercise in “i told you so’ – we all know i’m a mouthy Greek. BUT i did tell you so! And i told you so a long time ago.
We have to take note here so that we learn. This is my message. Major turning points are key to everyone and one needs to be aware of them.
$VXX 27 to $VXX 50 was my target/prediction.
Unfortunately my specialised area is poo poo-ed, the $VIX. Hedge funds dismiss it, technical analysts rarely chart it. Talking heads call it “amateur”. It is dismissed throughout the entire financial system.
It’s all good, I like being in the outcast team. You can laugh at me if u like. But you can’t laugh at facts. And while 2018 proved to be an extremely volatile year the biggest question that started to emerge on everyone’s list since we started to decline was “where and when will this stop”?
We are all programmed to get involved with intraday price movement. Short term targets. Resistance/support. This is trading right? But we have all forgotten corrections and bear markets. And whilst Wall Street has you all piling in buying stocks at all time highs, with the $VIX suppressed, it shocks most when all of a sudden the arse falls out of your investments and all of a sudden it becomes “Silence of the Bulls”
Long term members will knowI switched from Bull to Bear, citing a dirty spanking was coming and it came. Of course timing is always key and we use our tools (technicals) to work out the puzzle that is in front of us.
I have said many times over, it’s not about $SPX or $NDX levels or flipping $APPL or $AMZN it’s about the $VIX. The indicator that is shunned by everyone.
We have all seen a million roadmaps on $SPX. Daily, 1 hr, 30 mins. Even weekly charts. And they work. BUT what gives us our ultimate targets? What generates a solid bottom or top?
For me the answer is and has always been the $VIX and $VXX. It has never failed me. It told a story back in October and over Christmas my targets were met giving us our market bottom.
Let’s take a look and track my observations/warnings and prediction.
On the 3rd of October my eye led me to draw this. VXX was 27 and I painted a 56 target. It’s ok i’m just a mad Greek 😉
The similarities were precise even though extreme. Couple that with we have seen a thousand analogs and disbelief sets in. It’s human nature. But if I can reach out to as many investors as possible to prove the magic then I’m happy.
Let’s continue tracking its progress. Now remember I’m talking LONG TERM not short term.
As with all technical analysis one also needs to look elsewhere, so I did, the $VIX.
The $VIX monthly chart showed me a 30+ target.
As time passed i continued to see more evidence of a volatility spike and backed up my $VXX analog with this potential inverse with a high 50 target.
October 23rd came and pattern still remained visible
We did get a nice pull back on the $VXX which gave this larger inverse a better possibility
Of course we continued to track the $VXX all thru December
And then finally pow, off it went:
Until finally it hit target Dec 26th/27th.
And for giggles it hit my overshoot area into 52.
And of course we sit here today with a 10%+ rally on $SPX and a 20%+ drop in $VXX.
My $VIX 33 target was met also with an overshoot to 36 so you see, these two lame ducks that nobody acknowledges or follows found the TOP and the BOTTOM.
The Buy on $VXX was 26/27 with a high 50/52 target. Now that is what you call magic.
So where did the $SPX land on my high $VXX target? After all we all tried to guess it on the way down!
Well it landed right at KEY support on my monthly $SPX chart that I’ve been tracking since 2000! Quite simply amazing.
$SPX monthly before and after
The confluence was massive and oh so simple if only our moto was “IN $VIX WE TRUST”
Trading is hard, the market devils lurk to confuse people and keep people on the wrong side. But I think we can all agree that regardless of the talking heads etc, the $VIX provides us with max extremes and one should never ignore them.
I’ve updated some charts on the stream and will keep looking at what is likely in store for us short term and longer term.
Update from Sven:
The flow above shows how effective these charts are in regards to market lows. Here’s a sequence from that December market low to the recent highs that signaled a renewed volatility spike:
What can I say, she’s the Vixen and indeed volatility can be charted and is highly relevant in identifying market turns.