VIX Declines and the Market Rallys

The VIX Decline and the Market Rallies: Above is a chart of the VIX and SPX over the last three years.  There has been a interesting pattern that has formed since the bottom in 2009.  Each of the 3 three years there was a spike in the VIX followed by a market decline.  From peak of the VIX to its bottom in 2008-2009 the VIX declined for 547 days, in 2010 462 days and this year the VIX has been declining 143 days. 

Peak VIX to Market Bottom: In these patterns VIX trends down and the market trends down till it forms a bottom. In 2009 it took a 142 days from the peak of the VIX to the bottom of the market, in 2010 it took 103 days and now in 2011 it has been 133 days since the peak of VIX.  

Confirming Rallys: During each of these patterns once the market entered a bull market rallying for a few months.  In 2009 the market rallied for about 287 days before it dropped in the summer of 2010.  In 2010 after the drop in the summer the market rallied for 323 days before this summers drop.  Now if we are entering this pattern the market has only rallied for about 36 days- which means we could have a lot more rallying to do. 

Marking Tops:  This pattern also is good at marking the markets tops. Whenever the VIX gets back down to 16 this typical was the end of the bull run.  With the VIX at 22 now it doesn't have to far to go. 

Summary: What does this all mean, well for starters if this pattern continues the market has another bull leg in it for what could last 3 months or more. Based on the number of days the VIX has decline it is enough days to confirm a market bottom.   What will need to confirm it is a continuing decline of the VIX and a strong rally by the market- watch the 70 day moving average if it maintains a decline this pattern is confirmed.  In addition our Piker Indicator gave a bullish cross on Friday which confirms some more upside in the market. 

6 Weeks Down 14 Weeks Later

14 weeks ago we made this post showing the markets returns after 6 consecutive weeks down.  Last week was the 13th week after this occurred.  So far SPX has dropped  -9.19% since the 6 weeks of consecutive lower closes.  Below are charts showing the markets return are on the 14 th week.  The last time this occurred was in 2008, after the 14th week the market was down over 24%. Of the other 5 times this occured SPX was positive 4 of the 7 times and had a negative return 3 of the 7 and the negative returns were barely negative with the highest being -2.3%.  

Below is another chart highlighting where SPX was 14 weeks later.

Of the last time SPX had 6 consecutive weeks down in a row, by the 14 week the market had retraced most its decline or was positive. The only time this didn't occur was in 2008 the market was still very negative 14 weeks later.  But those gains would soon be gone.  If you look at SPX return 30 weeks later 5 of the 7 times after 6 consecutive weeks down the market was negative. 

So historically the market isn't looking to bullish long-term since the 5 of last 7 times the market has been negative. 

Low VIX and market tops

On Friday the VIX aka the Volatility Index closed at its lowest level since 2007, closing at $15.32.  Support for the VIX has been around $16.90-$15.60, since 2008 before the market tanked.  The most recent line in the sand is at $15.60, which was broken on Friday.  With the VIX measuring fear and the volatility in the market, this extremely low number in theory represents a complete lack of fear and complacency in the market, meaing very bullish sentiment.

Just looking at this VIX chart, one can see when VIX hit these levels it quickly bounced the next few days. Moving up to the 21 day ema.  The longest time it spent at this level was in late 2010 early 2011.

 Here is a look at SPX with the VIX.  The last time VIX was near these levels, the market topped in May of 2010, right before Waddle & Redd killed the market with their order of sell 10 E-minis.  In addition it marked the December 2010-February 2011 short-term top.  But more importantly in early 2008 the VIX was near these levels, it was trading around the high $16's and this marked the 2008 top. 

 

Looking at VIX, when it has dropped below support at $15.60 here are the changes in the market over the next 1 day, 5 days, 30 days and 60 days:

The biggest decline came just a year ago, the VIX broke below the $15.60 level and the market tanked for the next 2 months.  But looking at the chart we can anticpate a market that does not move anywhere for the next 1-5 day. But after that it will chose a direction, the biggest moves have been moves down. This table does not include, the drop from 2008, since the VIX never broke the $15.60 level.

Now a caveat to VIX being this low is that if it continues lower, it is possible there could be another bull leg. Notice when VIX broke the $15.60 in 2003, the market climbed and climbed.

To sum up, we have a VIX at a very low level and in the most recent past this has marked market tops.  The most significant market top was the 2008 high.  But VIXs continues lower it is possible to see a new leg up. But the edge seems to be pointing towards a move down.

Morning Round Up

Tuesday was another day down,going against the typical QE Fed pumped market script the market has been trending down for 5 days.  Price action was bearish yesterday as the market broke below a key support level of 1319, trading as low as 1309. In addition SPX broke below its 21 day EMA at 1318.51.

The break confirms that Rounding Top Pattern and as long as it stays below the 1319 level it is still valid.   

But this morning we have futures up and SPX looks like it might open above that level, SPY is trading slightly  above its key resistance level of 131.95 and is trading at 132.14 as of 7:50 AM EST.

 After 5 days down the bears might be taking a rest, but the question is can the bulls recover the key levels they lost, if not the bears remain in control. The key will be if we get a gap up and fill or gap up and trend.

KEY LEVELS: (SPY Levels are below)

SPX (click on the charts for a larger view)

Support: S1 1309.51 S2 1303.91 S3 1280 S4 1261 S5 1249

Resistance: R1 1319.46 R2 1329.83  R3 1338.80 R4 1344.07

SPY (click on the charts for a larger view)

Support: S1 130.99-129.67 S2 127.92 S3 125.22

Resistance: R1 131.92  R2 132.81 R3 133.94 R4  134.67

As of this AM SPY is trading slightly above the key resistance level of 131.95, making a high of 132.29.   This high will be a key for the key, if SPY can get above this it may start to run, this level is also the 230 day moving average on the hourly chart, which is key support and resistance moving average.  With SPY opening up this high, it is possible we get a gap fill.  What SPY does after that, will be a good clue to see what the market does.  The trend is down, a PikerIndicator Sell signal and we have a confirmed rounded top.  Till we see some more bullish action, the trade is bearish. 

PikerIndicator Update

Yesterday our proprietary indicator the PikerIndicator gave one sell signal yesterday. While this sell signal was accurate in the morning, as day went on the signal looked like it would be voided as the PI was actually trending up.

By the end of the day the signal was very weak, since now more data had been feed into the indicator.  The PI barely broke below 45 which is neutral and the moving average cross was very close to crossing back up.  The sell signal is still there but this is a very weak one and based on this mornings futures it may come at a loss, with SPY trading above key support at 131.90.

Morning Round Up

Monday the market moved lower again, after failing to get back into its annoying range which it broke out of to the downside on Friday.  The bears were able to defend the bottom of the range as resistance and the market fell.  This recent drop has be caused by an overbought condition in the market, which was discussed on April 7th's Morning Round up. But additional selling pressure is coming from the breaking of key support levels. 

Based on the futures this morning SPX now looks like it will test the important 1319 level.  This was the second break out level that moved the market near the February highs and has support via the 21 day EMA.  In addition to the support levels, there is unfilled gap at this level as well. If this level should hold it may provide another bouncing point for the market.   If SPX breaks this level, the next support is 1306-1303, if it bounces next resistance is 1329.   Check Below for SPY's Key levels.

KEY LEVELS:

SPX (click on the charts for a larger view)

Support: S1   1319.46 S2 1303.91 S3 1280 S4 1261 S5 1249

Resistance: R1 1329.83 R2 1338.80 R3 1344.07

SPY (click on the charts for a larger view)

Support: S1 131.92 S2 130.00-129.67 S3 127.92 S4 125.22

Resistance: R1 132.81 R2 133.94 R3 134.67

As of this morning 8:00AM EST SPY is trading below the 131.95-131.91 level.  This is a key level, if SPY cannot over take this level during a possible gap up, this retracement might be over.  It would also give confirmation to the Rounded Top Pattern that has been discussed here. If this level does not hold, SPY's next support is 129.67-130.00.  If it does hold look for SPY to at least retrace back to 132.81. 

PikerIndicator

The PikerIndicator is a proprietary indicator that gives "Buy" and "Sell" signals based on various market metrics.  The last signal was 3/24 to Buy, and it gave an "Overbought"/Warning sign on 4/6.  Taking profits during this overbought condition was a good trade. 

Now the market has worked off the overbought condition and based on the current level of the PikerIndicator it remains Neutral, but looking bearish.  The 45 level is neutral for this indicator a break below it would be bearish, a bounce off it would signal some additional buying in the market and one should remain long.  But in addition to the PikerIndicator sitting on a fence, a "sell" signal is almost being generated as the two moving averages are nearing a cross, this would coincide with the drop below the 45 level.

Combining this indicator with Technical Analysis gives a strong edge. For instance, one could use the key 1319 support level in conjunct with the PikerIndicator. 

Rounded Top Continued

Last Thursday, we mentioned the potential rounded top pattern that was forming.  This is a reversal pattern, that marks the reversal of a bull run and the start of a move down. Since then the pattern continued to form the topping pattern and looks to be ready to roll-over.

During that post we mentioned:

A drop below 1319 would be a break of the support and the Rounded top would be confirmed.

Today the market came close to testing this level but never was able to break it.  This is not only a key level for the Rounded Top, but it is the 20 day ema, and a previous resistance level that if all is ok in the Bull Land, should act as support. If this level was to break, it would create some strong selling pressure.

SPY Rounded Top: Key level for SPY is 131.90

Morning Round Up

It is Bizzaro world out there, when a government shut down and $111 oil are good news for the market!

Same story different day, yesterday the market tested the top and the bottom of the range 1329-1338 range.  SPX managed to drop below the range but recovered and closed back into the middle of the range. The range has expanded on SPX to 1338.80 just hundredths of a point higher. 

KEY LEVELS:

SPX (click on the charts for a larger view)

Support: S1 1329.93 S2 1319.46 S3 1303.91 S4 1280 S5 1261 S6 1249

Resistance: R1 1338.80 R2 1344.07

SPY (click on the charts for a larger view)

Support: S1 132.81 S2 131.92 S3 130.00-129.67 S4 127.92 S5 125.22

Resistance: R1 133.94 R2 134.67

SPY stayed within its range yesterday but the top resistance has moved to 133.94.  As of this morning 8:30 AM EST, SPY is trading right at this level.  A break of the high on Monday at 134.00 would confirm a break of the range.

The markets appear this morning to be testing the top of the range again, the bulls will need to follow through or this will be another failed attempt at a break out.

Rounded Top Pattern

With all the chop in the market after the rocketship move up, SPX and the DOW have formed a Rounding Top pattern.  The rounded top pattern, is considered a reversal pattern.  The pattern develops after a move up and the stock or index remains in a tight range forming a dome or arch type pattern.  The reversal comes after a break of a key support level. One of the key aspects to this pattern is the volume, volume should be decreasing as the top is formed.  Drum roll, yes volume has dropped big time during this top forming.(see chart below for volume)

Here is the SPX rounded top pattern.  Pardon my drawing it is crude and shitty, but you get the point. A drop below 1319 would be a break of the support and the Rounded top would be confirmed.

Dow Jones rounded top:

This should be a key pattern to watch and reinstates how important the top of this markets range is.  A break of that range would negate this pattern, but a bottom of it would confirm it. 

Morning Round Up

Wednesday the market took a quick trip off the range but didn't like the outside world and came back.  This is referring to the range bound market between 1329-1338, that has been going on the last few days.  SPX broke out slight in the morning, but was unable to hold above the 1338 level. Now SPX remains back inside its range and the market is directionless once again. 

KEY LEVELS:

SPX (click on the charts for a larger view)

Support: S1 1329.93 S2 1319.46 S3 1303.91 S4 1280 S5 1261 S6 1249

Resistance: R1 1338 R2 1344.07

This failed break out should be seen as a negative to the bulls run recently.  During this entire retracement, break outs have resulted in move ups.  A failure of this breakout at monthly highs, is not a bullish indicator.

One reason this break out failed, was the market is simply overbought.  Below is the Piker Indicator, which is a formula that takes into account breadth and volume.  Rather, then the old overbought signals where price was the key factor.   When PI reaches overbought it signals a lack of available sellers, and with no one able to sell to the bulls, the market cannot move higher.  The last overbought signal was before the drop in February. The overbought signal is indicated by the Yellow Candle. 

SPY (click on the charts for a larger view)

Support: S1 132.81 S2 131.92 S3 130.00-129.67 S4 127.92 S5 125.22

Resistance: R1 133.83 R2 134.67

Resistance for SPY remains at 133.83, this level would need to be broken before a new move up can happen.  Support is at 132.81 break of this would send SPY lower as the bottom of its range is broken.

 

Morning Round Up

Update : Spx is no overbought based on the PikerIndicator. (Screen Shot Now Available). So far the 1338 resistance has held and for SPY the 133.83 has held.  The Yellow marks the overbought sign.

SPX

Support: S1 1329.93 S2 1319.46 S3 1303.91 S4 1280 S5 1261 S6 1249

Resistance: R1 1338 R2 1344.07

SPY

Support: S1 132.81 S2 131.92 S3 130.00-129.67 S4 127.92 S5 125.22

Resistance: R1 133.83 R2 134.67

Tuesday saw another day of chop around the 1329-1338 range, with the market closing near the center at 1332.61. This ranged has formed over the last couple of days providing new short-term support and resistance levels. The range represents a consolidation phase of the most recent rally, as the market tries to figure out where it wants to go.

But as of this morning 7:00am EST the top of this range may be broken, as SPX futures are up 9 points and above the range. The top of this range is 1338 so watch this level. SPY has already broken above the range, trading at 133.90. The range can be better seen on the hourly chart. If the market does break out the next resistance level are the February highs of 1347

The bulls still remain in control of this market breaking resistance levels daily, the Piker Indicator signal is still a "Buy" since 3/24 and it has been a nice ride up. But it may be fading, there has been an almost 100% vertical retracement since the drop in March and the Feb highs may be to strong of resistance. The PikerIndicator is also nearing overbought and showing divergence on the new recent highs.

 

 

SPY Charts:
SPY remains in the same range as SPX but its range but this range is 132.81 as the bottom of the range and 133.78 as the top. This morning SPY has broken out of that range and is trading 133.92 as of 7:00 EST.

A break of this range establishes support for SPY at 133.78 and the next resistance level is at 134.67.

Choppy Seas

SPX

Support:  S1 1319.46 S2  1303.91 S3 1280  S41261 S5 1249

Resistance: R1 1333-1334  R3 1344.07

SPY

Support:  S1 131.92 S2130.00-129.67 S3127.92 S4 125.22

Resistance: R1 133.64 R2 134.67

Chop, that is what we are seeing the past two days with this market as it tries to figure out where it wants to go. Right now the 1333-1334 level has been a key resistance point, since a break of this would mean a break to the February highs, plus it means a 100% retracement of the CRASH OF 2011!!!!!!!

The intermediate term uptrend has been slightly broken, but time has broken this trend and not necessarily price.  What does this mean?  It means the trend was broken via hortizonal move to the right on the chart versus a vertical down move with price breaking the trend.

The trend still remains up but the key level to watch is the 1319 level, this was the last break out level and there is a remaining gap from the break out that has not been filled.  If the market moves to this level and the bulls cannot hold it, this "retracement" should be over.  Till then your Long is your Friend.

Momentum does seem to be fading and the PikerIndicator is showing some signs of weakness. The uptrend has began to stall and remains in a neutral.  The PI dipping below the white line would be the first "Red Flag".

SPX End of the Day Review

Friday SPX continued its uptrend and it appeared as if it would test the February highs, but the resistance level at 1332, provided to much selling pressure.  This level represents the highs from the beginning of March, which SPX was unable to break above, after the February highs.   On the chart the current resistance level is at 1332.31, SPX closed at 1332.41. While this is broken, some more follow through will be needed to confirm it.

SPX remains in a strong uptrend with key support below it, momentum may be fading as the bulls have almost retraced 100% of the decline in just over 12 days. For the bulls, short-term resistance  is at the 1332-1333 level and the longer term support is 1344 February highs.  For the bears at this point a short-term key reversal and support level is the 1319 level, with a longer-term key support level at 1303.

But the current trend may be fading.  SPX created a shooting star candlestick pattern this represents a day where buyers were into control but eventually sellers came in and closed lower then the highs creating a long tail. This sometimes represents a topping signal, but a down candle the next day is needed to confirm it.

Although if we look at the hourly chart, we can see a Hammer Candle forming, where the sellers had control of the market but the buyers eventually came in moving the market higher, creating a long tail and the bottom. On the hourly chart SPX bounced right off 21 EMA and the 1330 support level.

The candle sticks have created mixed signals to trade from.

 The uptrend has remained in tact the last few dips and have been support for this market. 

Breadth has been strong this entire rally, but a pause could be warranted as NYAD has touched the top of its Bollinger Band. Typically this means the market may move down at least to the 8 day ema.

One thing to look at is the comparison of NYAD in December of last year to this current move. It looks very similar.  NYAD was declining then bounced very strong, and fast.  This was the start of the rally that lasted till February.

 

The PikerIndicator has not flashed any new signal but is nearing an our bought signal/cautious long.  But this has not happened yet. Since the 3.24 "Buy" signal, SPX has gained 1.75%, since the "Oversold" condition, the market has rallied, 6.5%. 

SPX Weekly Chart

SPX closed the week up again for the second week in a row, it has now officially broken the downtrend from the February highs.  During the week the market broke out above 1313, which set SPX up for a run to 1337.  On the weekly chart SPX has now firmly established the 1313 level as support.  But there is still strong resistance at the Feb highs of 1344. 

The overbought conditions have also been slighty worked off during the last decline and the indicators look like they have some room to move back up again. 

The next true resistance level on the weekly chart is 1344, a break of this level and the market would be off to the races and 1400 would be tagged in no time. The trend still remains up and "BTFD" looks to still be working. 

End of the Day Review

SPX gapped up this morning above resistance at 1319.46 and remained above that level, creating a new support level.  The market remains in its uptrend and breaking above resistance levels that were established in February.  SPX has now retraced more then 78% of its decline from the February to March decline and is nearing the the February highs. 

Right now SPX resistance is at 1332.31, this was resistance before the market declined in early March.  The high today was near this level. 

The market remains in an uptrend with strong breadth, NYAD has made new highs and continued in its uptrend.  Although it may be nearing a short-term correction, to at least the 8 day EMA, as NYAD has reached the top of its Bollinger Band. 

Morning Round UP 3/30

SPX

Support:  S1  1303.91 S2 1280  S31261 S4 1249

Resistance: R1 1319.46 R2  1332.41  R3 1344.07

SPY (check below for SPY's charts)

Support:  S1 130.00-129.67 S2 127.92 S3 125.22

Resistance: R1 131.92 R2 133.64 R3 134.67

 Support held once again for SPX, bouncing after making a low of 1305 yesterday, right around the 1303 key support level.  The market rallied from there closing right at resistance at 1319.46, this is a confluence of resistance from early March before the market dropped and resistance from Monday.  A true break of 1320 would give more confirmation since it gets above the 1319.74 high of Monday and get back above the up trendline. (see hourly chart).

But with futures up a half a percent as of this morning, as of 8:15 after the ADP Employment data. So it appears that the 1319 resistance level may be broken.  A true test will be if the market gaps up and fades down, then is able to maintain the break out level.  

The Piker Indicator has been able to enjoy this recent move up having given a "Buy" signal on 3/24. The breadth is still trending up and not near overbought.  Based on the indicator a test of the February highs is possible, if it can get above the 1320 level.

SPY Chart:

Morning Round Up 3/29

Levels to Watch 3/29

SPX

Support:  S1 1303.91 S2 1280 S3 1261 S4 1249

Resistance: R1 1319.18 R2 1332.41 R3 1344.07

SPY (check below for SPY's charts)

Support:  S1 130.00-129.67 S2 127.92 S3 125.22

Resistance: R1 131.92 R2 133.64 R3 134.67

Monday the market ended its winning streak at 3, closing slightly down with a decline of .27%.  The market drifter lower the entire afternoon, finally selling off at the end of the day.  On SPX the highs from Friday held as resistance and the 1319.18 level remains a key level to watch.  SPX did break the current uptrend but barely and this may have to be taken lightly. Support remains at 1303-1297, with key moving averages in this area. Consolidation looks to be starting after a bounce off the March lows. 

SPX Hourly

SPY

SPY has similar resistance and support levels to SPX as it should but it trades slightly different.  Yesterday SPY broke above the 131.87 high making a new high at 131.92.  One difference that is interesting is that while SPX has broken its downtrend from the February highs, SPY has not and this level is strong resistance, with Friday's and Monday's price action failing at this level.  In addition SPY has not broken its new uptrend from the March lows.

SPX Daily Chart

Friday the market closed up again for the 3rd straight day.  SPX has now managed to retrace more the 61% of its move down from the high of 1344 and low of 1249.  This retracement has allowed SPX to move about most prior resistance levels and above its 20 and 50 day moving averages, which were providing resistance for a short time. 

In addition, SPX has broken the down trend that was formed during the decline from the 1344 high in February.  Does this mean that the down trend is over? It is possible but a one day break isn't 100% accurate.

Anew vertical uptrend has formed which is typical in a QE Fed rigged market.  This uptrend can be better seen in the hourly chart below.  

The odd thing about this entire "rally" is that there was no consolidation or bottom forming.  This is why it looks more like a retracement rather then another leg up. Bottoms and tops typically form with consolidation, just like in early March top before the market dropped and just like in December bottom before the market rallied.

The Piker Indicator gave two "Buy" signals on Thursday and Friday**, but this signal comes with some skepticism, since there still seems to be a lack of bottoming action. Another caveat to this signal is that the breadth is almost overbought again so the market may not have the momentum to move above 1344.  A stop for any longs would be below 1300.

**All contents on PikerTrader LLC are provided for information and educational purposes only.  Your investment and trading decisions are solely your responsibility and it is recommend that you consult with a financial advisor and conduct your own independent research before making any investment decisions. Past performance is not indicative of future results and there is a very real risk of loss in trading. You should not invest funds that you cannot afford to lose. A loss incurred in connection with trading can be significant.  Pikertrader LLC makes no claims whatsoever regarding past or future performance.  All examples, charts, diagrams, lesions, blog post, are for educational, entertainment and information purposes and should not be consider recommendations to buy or sell a security.

Second Buy Signal

The Piker lines have crossed up giving a second buy signal, confirming yesterday's first buy signal. See that post. The signal isn't official till the end of the day but if the market continues to move up, it is safe to say this signal will stick.