The relationship between the daily VIX and VIX 20-day MA has been an accurate SPX predictor. Below is a two-year chart of daily SPX (green line and right scale), daily VIX (red line and left scale), and VIX 20-day MA (blue line). Typically, the chart shows, when the daily VIX rises above its 20-day MA, SPX falls. Conversely, when the daily VIX falls below its 20-day MA, SPX rises. Recently, the daily VIX crossed and stayed below its 20-day MA, which is typically bullish for SPX. However, both the daily VIX and its 20-day MA are at low levels, which indicate limited SPX upside. Also, the daily VIX and VIX 20-day MA both created double bottoms, i.e. in mid-2005 and early-2006, and triple bottoms are less likely. The second chart is a seven-month SPX daily chart with the NYSE Oscillator 50-day MA (red line and left scale), which closed at negative 8.57 Fri. The Oscillator's 50-day MA may continue the downtrend, until it falls below negative 20. Moreover, the chart shows, VIX has been below its 200-day MA most of the time over the past six months, while the CBOE Put/Call 10-day MA has traded between 0.80 and 0.90 over the past three months. Furthermore, the black ADX line indicates a trendless market, while the recent DIs or directional indicators (green and red lines) show a neutral to slightly bearish market trend. However, the MACD uptrend is bullish, at least short-term. The indicators suggest a volatile range next week. Recently, SPX generally traded in the upper half of its daily Bollinger Bands, currently between 1,302 and 1,320. Major resistance is between 1,318 and 1,320, i.e. daily, weekly, and monthly upper Bollinger Bands. Also, 1,316 is a multi-year resistance level. VIX closed at 11.59 Fri. If it falls to 11, that may indicate an SPX pullback. If SPX rises significantly above 1,320 on heavy volume, then it may rise to around 1,350, on a short-squeeze. However, it seems, there has been heavy short-covering at times over the past few weeks. So, a pullback to around 1,275 or lower may take place before another possible breakout attempt. Free charts available at www.PeakTrader.com Forum Index Market Forecast section. |
