Below is a chart that shows a nice correlation between the price action of VIX and SPY and their 20, 2 Bollinger Band. What the chart shows is that typically when the VIX hits the upper level of its Bollinger band along with SPY hitting the bottom of its BB, it marks a low in the market and a bouncing point. It is same on the opposite side of the Bollinger Band, so when VIX touches the bottom of its BB and SPY touches the top, this marks a top in the market.
VIX touched the touch of its BB yesterday but SPY did not. This pattern usually jump starts when both hit the BB and the VIX will typically hover around its BB for 2 – 4 candles. For SPY to hit its BB it would need to get to 203.38, which is right around the March lows. This correlation is pretty strong and it shows there is some potential for further downside but it is limited. Plus our signal is flashing oversold I know not music to Slopers ears so be careful!
Hello to all Slopers, before we begin the analysis of the E-mini S&P500 today we want to make a brief re-cap of what was the situation in our last post 10 days ago. Basically we suggested to NOT GO SHORT, because the market was oversold, and we indicated the ~2040 price area as the most likely bottom, you can read it all in our previous post indicated above. The market massively bounced from there, hopefully you have followed our advice and avoided going SHORT at the bottom. Today we will look at the market and try to forecast with our models what is in store for the next 1-2 weeks.
As I mentioned in my post on February 24th, 150.00 is the Bull/Bear Line-in-Sand level for the SPX:VIX ratio, as shown on the updated Daily ratio chart below.
At the moment, price is back above this level, after bouncing in between 160.00ish and 120.00ish since that last post.
All right, today just a quick analysis, hopefully it can be helpful to Slopers that are thinking to go SHORT right now…
First of all, please check our previous post from February 23 where we insisted it was time for a SHORT trade. That was two weeks ago.
Now, the market is tanking and it has made a bit of road down already, so let’s have a look to what our model say, where is the limit for this “correction” ? Just to avoid going SHORT at the bottom…
The market yesterday closed down again and reached a (more serious) intraday low of 2085.25. Is the correction over? Maybe. It has for sure entered the ~2097-2040 DAILY range that we originally indicated as “buyable” for short-term swing traders. If you are a long-term holder and you did not buy some weeks ago in the ~1970 area, this is an area where you may have started to consider buying again, it’s better than buying at the previous peak at ~2110, although of course is not such a great buy as it was a few weeks ago, but these WEEKLY+MONTHLY LONG setups don’t come up every few days as their time period is longer and they need more time to manifest.
Be aware that the market may correct further, as this is a WEEKLY correction in the end, it started last week and so far is continuing into this week, so if you go LONG be prepared to distribute your allocation across several levels in the area indicated.
150.00 is the Bull/Bear Line-in-Sand level for the SPX:VIX ratio as shown on the Daily chart below.
Price closed today (Tuesday) at 154.53…failure to hold 150.00 could see a serious correction in equities and possible break of the critical 60.00 level, which has been threatened numerous times since mid-October 2014.