Sunday, September 25, 2016

VIX P/C Continues to Slide

This weekend I was watching a Brad Pitt movie from a couple of years ago called "World War Z", one of the many zombie apocalypse movies over the last few years.  Two things struck as similar to modern day economics, the first is the contagion of modern day central banking and the second is the Israeli "tenth man rule".  Israel was the only country to anticipate the contagion by agreeing to use a committee of ten decision makers where nine agreeing on one outcome would default to the decision of the contrary vote.  Is there more than one of ten that does not agree that much higher prices are ahead?

Most of my indicators are repeating a pattern seen between May and July of 2015.  This weekend I will follow a pattern starting with the individual indicators and conclude with the composites.  First is the VIX P/C which is an almost identical position to early May 2015, where blossoming bearish sentiment (low VIX P/C) saw a last gasp rally to new highs.  Capitulation by the bears was shown by a spike in the VIX P/C.

The Short Term Indicator (VXX $ vol & Smart Beta P/C) continues to show similarity to the July 2015 period, pointing to less upside potential and a shorter consolidation period ahead.  The money flow indicator SPXU/UPRO is very similar to the Short Term Indicator, having retreated to slightly below the mean.

The overall Scoreboard Composite is somewhat in between the two indicators show above, but shows that this is not the time to be overly complacent.

Conclusion.  The topping process continues.  September's high volume on a pullback is somewhat bullish short term, but the lack of a panic low makes me suspicious of the sustainability of any rally.

Weekly Trade Alert.  Long entry target was not meet last week, and I prefer to hold off and look for a good shorting opportunity which could come over the next two or three weeks.

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