Vix-dow (2)

[Riz]

Seeing the existing vix thread getting longer and longer with all those charts thus making those on dial up wait for a long time to read, I'm starting a new vix thread only as a continuation of the old one, please click this link if you'd like to read the previous posts on the initial thread: http://www.trade2win.co.uk/boards/showthread.php?s=&threadid=4069&perpage=30&pagenumber=1

Riz

 

[Riz]

VIX (The Market Volatility Index) measures the volatility of the market "taking the weighted average of the implied volatility of Standard & Poors 100 Index calls and puts."

It is therefore used as a general indicator of market volatility and sentiment rather than volatility of a certain stock or index...

It is an inverse indicator like TRIN, higher levels indicate bearish sentiment while lower ones indiating bullish sentiment...

On this basis in a bull market we'd expect VIX going down while indices going up...and vice versa in a bear market of course..

Finally "The further VIX increases in value, the more panic there is in the market. The further VIX decreases in value, the more complacency there is in the market. "

Riz

 

[Riz]

Adding the last couple of posts here for the sake of continuation...

23.11.2002

Due to a break and being busy afterwards, I havent updated vix thread for a long time...now that things getting quite hot maybe its time vix thread updated...first a look back to see what happened and trace the signals VIX has given us so far towards the big rally started in October when dow hit 7200 to yesterday hod of 8880, a rise of 1680 points in a short time, more than 1300 of which in 8 trading sessions...followed by a month of consolidation when dow added over another 300 points...

We also know that many traders if not most expected a bigger market crash as of end of summer especially in October, but to their surprise market responded with a sharp rally, no doubt many of them got caught out on shorts...so we look at vix daily chart to trace the signals its given us about the current rally and try and find out if there are any as to where we may go from here..

Line 6 shows the double top formed in sept 2001 and june 2002, clearly telling us we need to see vix breaking this resistance for bigger market crashes...

We see vix trying again in august 2002 but instead of going for the earlier top it ended up forming a lower high which later in october 2002 turned into a lower double top (line 7)...at the same time if we have a look at the trend line 0 we see a clear R/S switch, another signal that vix failing to make it higher and set for big drops referring to market rises...

Trend lines 1 and 2 also failed to hold vix while res line 9 managing to push it further down...

The major horizontal support line 5 at 30 was the last one failing before the last vix falls and market rises...

This left vix just a bit above another major horizontal support line 3 at 26...following this is line 8 at 22/3 and line 4 at 20...

Considering the way the chart has developed it wouldnt surprise me to see vix hitting 20 before starting any uptrends, however 20-26 level (line 3 to line 4) is the most crowded vix level where it often forms rectengular consolidations, we may therefore first see bounces off line 3 and in between line 3 and 4... also breaking down line 4 at 20 is a hard case and will refer to even bigger rallies if it occurs...also worth to note that both rsi and stochastics are at very oversold areas though no signs of +ve divergences yet...

As for the dow daily chart the 2 things worth to note would be the steep downchannel broken up on Oct 11th signalling the reversal and the head & shoulders clearly broken on the upside on Nov 21st...giving us a target around 9k, as 9k is also a major resistance level, it would be worth to note that the test of it should give us clear signals about further rallies/falls, and best to wait and see how dow handles that level...

Both stochastics and rsi are overbought on the dow daily...

Overall the vix still weak and dow strong and apart from o/s, o/b indicators no signal of reversals yet, still the levels we're entering on both together with the o/b, o/s situations are suggesting consolidations needed at around these levels before further big moves, therefore we are more likely to see retracements as well as advances while consolidating as of next week...as for the widely talked end of year rally to take the dow back to 10k, I think we need to see how it handles 9k first and its best not to get carried away we've already gone up too much too soon anyway, but I still wouldnt discount it if the dow breaks and settles above 9k...

Riz

 

[Riz]

dow daily chart

 

[Riz]

29.11.2002

We had 3 sessions since last update, for the market first one up + 50 points, second one down -172 third one up +255, so although wed gain looks huge most of it is recouping previous day's loss...over all more or less in line with what is said in the previous update "therefore we are more likely to see retracements as well as advances while consolidating as of next week"...

Vix however though fell on the first session, on the second one bounced off the support line 3 and on the 3rd one while market rallying it had a big rise to break and close above line 5, thus diverging from the market...worth to note as they will eventually get in line...and that is where the question starts, was the vix bounce overdone due to being very oversold and its therefore going to fall back below line 5 which is a significant level or the other way round dow rally got too far as a reaction to the good economic data and traditionally +ve sentiment due to thanksgiving day...or a bit of this a bit of that...need to see a couple sessions to clarify this before guessing the market direction on the basis of trin...

Still we got dow daily chart to work out what may happen next...both rsi and stochastic are back at overbought levels though indicating strength (see horizontal lines at top), sooner or later a pull back is on the cards...only dow is not far from the 9k initial target and it looks like either before or after a pullback this level is going to be tested...it may even be tested more than once before breaking and settling above it or giving up and reversing the trend, the way things have developed since the start of october rally, it may well break and settle above it to prepare for a year end rally...

I have added another line (6) to the chart break of which seems to me could be a good indication of a trend reversal...

Riz

 

[Riz]

dow daily

 

[Riz]

30.11.2002

Nothing much happened as it was half session with most traders still on holiday, dow retraced a bit, so we still at advances as well as retracements mode and will be like this till 9k is sorted...

VIX however kept going up adding another +0.24 on the day... if it does manage to consolidate above line 5, I dont see big chances of market rallies, so we wait and see which one changes direction first to get in line...

Riz

 

[Riz]

VIX up +1.71 at 31.76, thus comfortably settling above 30 level suggesting recent market rallies over for now, in fact looking back with the divergence mentioned on earlier posts it signalled the end of the rally even when market was still rallying...

Having settled above 30 level VIX may as well have a go at 34/5 level as the indicators still strongly pushing up, suggesting further falls in the market...

DOW closed down -119 at 8742...indicators on the daily chart clearly showing it was topped and the strength of the fall suggesting further falls before a retracement, still the trend line 6 on the previous chart extended for the current one suggesting dow may find support around 8700 and if that goes the next one around 8660, following that is 8600 as the 00 number also close to the upside break of previous H&S, and if all these levels fail to hold we're looking for a big drop of a few hundreds from here...

On the upside, a bounce off the trendline mentioned earlier may start another fight over 8800 which if its taken I dont see why we shouldnt see it having another go at 9k...and if it does, it may well try harder this time...

So over all direction is down for now with possible bounces off the above levels failure of which may result in a few hundred fall from here...

Riz

 

[Riz]

dow daily...

 

[Pollux]

Viz:
Thank you for your excellent posts on the VIX etc.
A couple of wuestions for you: do you favour the Dow over the Nasdaq in volatility analysis, and if so perhaps you could say why?
On the DJI charts, could you confirm the seetings you have in for the Stochastics and RSI. I use Updata and would like to try to input the same data as your charts to see the differences (if any).
A tough call on the market right now as it could surprise and do a mini pre holiday spurt once bad news digested. I am tempted by a short on the Nasdaq however which would agree with your DJI analysis.

--------------------------------------------------------------------------------

 

[Riz]

Hi Pollux,

Glad you find the thread useful...

As for your questions, though nasdaq also volatile enough, the 100 blue chips forming the Dow reflect the market in general best I think, this doesnt mean of course one cant or shouldnt do volatility analysis on nasdaq and s&p 500 or others... another reason is because I trade the dow almost everyday I'm more familiar with and concentrated on its moves more than others, though I watch nq and es also intraday, but not trading them often...

The stochastics setting on my chart (PS I use sierra+mytrack): slow stochastics, fast %K length 10, fast %D (slow %K) length 3, Slow %D length 3
RSI length 14, RSI MA length 3

As for the dow, it moved more or less as predicted on the previous post, and bounced off 1 of the significant levels given on good data news, still moving between the given levels, we'll have a better idea of course at the end of the session...so far so good

Hope this helps...

Best Wishes

Riz

 

[Riz]

It looks like a topsy-turvy day ending in a doji. While looking at it closely however we can clearly see it started the day just as suggested in the previous post, dow falling fast heading for the given support levels, vix bouncing towards the given resistance level....

8700 didnt hold initially so dow went for 8660 which held (though breached by a few points) and provided a base for a bounce which later turned into an intraday rally on brek of the down channel on the 15min chart...failing to settle above our resistance level of 8800 it pulled back down to close the day only -5 points down at 8737...

VIX opened gapped up, immediately hitting 33 and entering our strong resistance area...drifted down most of the session before breaking down to go well -ve only to start bouncing last hour and end the day up +0.38 at 32.14...

Interestingly H: 33.14, C: 32.14, L: 31.14 best way to indicate a doji day...and once again proving how useful vix analysis can be to work out the market moves...

So where do we go from here? Well whatever we look at today session telling us 50-50...market shortly saying I cant decide between a proper pull back after that big a rally starting in October and a proper year end rally...only we have once again confirmed some clear support/resistance levels to watch...for the dow they are 8700, 8660, 8600 on the down side and clearly 8800 on the upside...8700 and 8800 worth to dwell on as we should not only be looking break of them but also try and see if they turn from support to resistance and the other way round to be convinced of a sustained direction tomorrow...I think thats especially needed after seeing todays peformance...if you have a look at the daily chart you'll see our trendline and horizontal line still holding their significance and may well help to work out direction...also the top line of the down channel and the horizontal support line on the dow 15min chart worth watching...

As for VIX we got 31 and 30 on the downside and 33 on the upside to watch for a sustained direction...

Riz

 

[Riz]

dow daily...

 

[Riz]

dow 15min.,..

 

[Riz]

Another bumpy day, not that I'm complaining...I find it easier to trade such days than those with dow opening gapped up/down and never retracing properly...the whole point was about spotting the reversal and we already had some levels to watch, marked on the previous charts which helped to call the vix topped in the chatroom, the sharp vix fall and dow rise followed immediately afterwards...

VIX opened gapped up, immediately jumping to 35.58 (+1.30) where it topped and kept falling, ending the day down -1.60 at 32.68... worth to note that the top was also our trendline on the daily chart and settling above it would be very bullish for vix and bearish for the market... it failed to break it and kept falling from there on even breaching and closing below the bottom line of the upchannel on the 60min chart... this line may prove significant on the next session too.. to name a level our level of 33 mentioned in previous posts worth to watch as resistance, failing to break and settle above it may pull vix back down to our level of 30...

DOW of course the other way round opened gapped down immediately taking 8600 support level and hitting 8502 where it sharply bounced and soon took the 8600 level back, it then consolidated around this level before resuming the uptrend which failed at 8679, worth to make a note of this level as it is now a horizontal resistance level on the 15min chart...

Dow then backtested 8600 twice when this level proved strong support on both occasions pushing dow up to close up +22 at 8645..

In the mean time Dow formed a wider downchannel on the 15min chart and closed right above the upper line of this channel...

So where from here? Of course if we could get the answer to this question right at least half the times we'd be very rich by now then again we can always guess and establish our support/resistance levels to watch while checking which way our indicators pointing...

Most of the levels worth to watch Monday already mentioned above, but over all it looks a case of 8600 as support and 8700 as resistance with the last candle on the daily chart biasing up a bit and VIX failing to settle above 35 and falling below 33 encouraging... that's of course if some significant w/e news dont come up...

But more important than all is to have a nice w/e away from the stressful market, so hoping you all do that, catch you next week

Riz

 

[Riz]

VIX 60 min...

 

[Riz]

DOW daily...

 

[Riz]

DOW 15min...

 

[Riz]

Gap up for VIX down for DOW which was obvious well before the market opened as futs had already seen to it... so our reading of a bit bias up on the basis of Friday close was proved unsound by futs and we started the session watching to see whether the significant DOW support levels mentioned in earlier posts would fail while VIX taking the significant resistance level of 35 where it failed on Friday...

VIX opened a bit above 34, later hit 34.90 where it failed to go further up to take friday highs, tried again later only to fail again, this time forming a lower high at 34.55 to close the day up +1.79 at 34.47 half a point below its hod.

DOW on the other hand took the 8600 level right at open and soon started consolidating above 8550 turning it into a significant intraday support level but later broke down and after failing the backtest too, 8500 was left as the last hope for a decent bounce but that also failed on the second test causing dow to close with a hefty loss of -172 at 8473 which was also low of the day...

Although dow has now clearly broken down its uptrend taking all major support lines and forming a steep downchannel on 60 min chart thus suggesting this downtrend should at least take us to 8300 as next major support level following 8400 as 00 level, the stochastics on the daily chart and both stochastics and RSI on the 60 min chart are clearly signalling an oversold situation...

Of course indices can always go a bit more oversold or signal oversold but still keep going down... however in this case VIX also not supporting further big falls yet, as it keeps failing to take highs with stochastics already signalling overbought and RSI forming a downtrend line on the daily chart...

So overall on the basis of the oversold situation on dow daily and 60 min charts (despite its being on a steep downchannel suggesting 8400 and 8300 on the cards in line with our call for a few hundred points down in earlier posts in case of 8660 being taken strongly) and VIX and its RSI failing to take highs while stochastics in the overbought area, I think a bounce first is due for the DOW, the strength of the bounce and the levels it hits should tell us how seriously we need to take it, obviously it needs to take and settle above 8550 to be convincing... having said that if VIX manages to take and settle above 35 the whole story my change, also watch 33 as support break of which could give bullish signals for the market and bearish ones for the VIX...

Riz

 

[Riz]

DOW daily...