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Volapiphany
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Volapiphany

by The MoleJanuary 14, 2019

Once again equity indices have become stuck near important inflection points, which incidentally in my book are key thresholds from which shifts in momentum and trend changes can be triggered.

No matter if you are bullish or bearish – this will most likely be the most important update of Q1 2019. So it’s once again time to forget about the daily noise, take a few steps back, and look at the market from a 10,000 foot perspective.

I actually didn’t even mean to post a momo update today but I was toying with some of my volatility chart and came up with a short term goodie I’m sure many of you will appreciate going forward.

It’s a chart of the VIX vs. the VXO, the latter sometimes being called the ‘old VIX’. A little history:ย Until a revamp in 2003, the VIX was based on OEX options, but CBOE ultimately decided to switch to SPX options to provide a broader sampling of volatility expectations.

Why? Because in order for a futures market to function, the market makers need to be able to cost-effectively hedge their positions.ย  Hedging the 1992 version of the VIX required frequent rebalancing of SPX options that was too expensive to implement.

Undeterred the CBOE introduced version 2 in 2003. The new methodology allowed market makers to hedge their positions with a static portfolio of SPX options that could be held until the VIX futures expired. VIX Futures started trading in 2004 and in 2006 options on VIX futures were rolled out.

So basically what’s happening in the chart above is that we are correlating two different sample sets: one produced by a narrow set of OEX options and one by a much wider set of SPX options.

What comes out the other end is a volatility ratio that is reminiscent of market breadth. And clearly there’s something to it as the red and green lines I’ve drawn mark important exhaustion points. Note that I am not calling them reversals as prevailing momentum can often push price far beyond what any indicator may claim.

That said breaches > the upper BB and below the lower BB seem to be useful in scaling out of trend trades. And can in correlation with various other technical mesures be useful for getting positioned. Speaking of which, let’s get to the momo update:

Let’s start with SKEW in relation to VIX, which IMO is a much better gauge of market momo than either on its own, but especially the vanilla SKEW. I have refrained from pointing at possible lows here as the BB has been falling and continues to do so.

What I’m mostly interested in right now is the falling diagonal resistance line that now extends into 6.6 on the ratio. It’s been rejected three times and the last one resulted into a big slide lower from SPX 2800.

We’re getting pretty close here and if this happens a fourth time then there won’t be a dry eye in the house, and I’m not talking about tears of joy either.

Next runner up is the VIX:VXV which I should rename VIX:VIX3M but I don’t wanna. I think my comment on the chart is pretty clear. The 0.92 threshold is where the bulls can start hedging faint hopes for a green spring. A reversal higher from there spells very bad medicine for the remainder of this quarter.

One more before I’ll have to drop below the pay wall but I’ll make it worth your while. First up we are looking at NYSE market breadth here and the 100/1.5 BB has treated us very well over the years.

Something to note however are large spikes in the ratio, which can eventually trigger another drop in price if markets continue to push sideways after they occur. So nothing to be worried about right now but if both January and February remain flat then I suggest you prepare for another leg lower.

In the past those final legs lower have been relatively mild, but of course we were in a completely different market phase, so let’s not jump to conclusions.

Alright, a ton more waiting below the fold:

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Public Service Announcement: This update too me quite a few hours to put together and I’ll have to catch up on some internal chores tomorrow. So no post on Tuesday and I’ll be back on Wednesday.


About The Author
The Mole
Mole created Evil Speculator amidst the chaos of the financial crisis in early August of 2008. His vision for Evil Speculator is a refuge of reason, hands-on trading knowledge, and inspiration for traders of all ages and stripes. You can follow him and his nefarious schemes at the usual social media waterholes.
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  • Brishort

    Excellent post Mole, but wait, slacker Tuesday now….
    Report to the Elliott punish room for re-education!

  • http://gerb-reloaded.blogspot.com Gold_Gerb

    DIA hourly.
    MACD shallow slide, I’m suspicious.

    pop-n-drop over next few days?

    https://uploads.disquscdn.com/images/8c8f43abd0e3337cb1cfdb20438ec9300f496b5104f37eff4f960df59ed8606c.png

  • Mark Shinnick

    Remain aware short miners.

  • werewolf

    great post mole…basically be wary!

  • https://evilspeculator.com Sir Mole III

    Yes. But could be profitable once we can pin this one.

  • ridingwaves

    posted last week, off to work,… see you rats…See Mole, us rats do offer some setups here….I’m here for the chick pictures though

    https://uploads.disquscdn.com/images/5b5ccfdc9176d52cbf3f4524b507ee9f8a9e5b3cad2ad52f4c09a308cfe9b53f.png

  • https://evilspeculator.com Sir Mole III

    Me too but nobody is posting any!

  • https://evilspeculator.com Sir Mole III

    Let me prepare the X-large whips.

  • Jason13

    Shorted that pop in Cable (GBP/USD)..hit a resistance level for me. Plan for week- long dollar via EUR and GBP, short Gold….took a small long in S&P futures but just for the day, still seeing another high here and Zero seems to agree. Have a great week guys and gals.

  • http://gerb-reloaded.blogspot.com Gold_Gerb

    let’s just go for the full video.
    ๐Ÿ˜‰

    https://www.youtube.com/watch?v=p0_R9pHjNpk

  • https://evilspeculator.com Sir Mole III

    I swear, every time I have to deal with support personnel I am tearing my hair out. Things have gone markedly downhill in the past three years or so. We are talking senior techs not being able to understand basic instructions or complete superficial tasks.

  • http://gerb-reloaded.blogspot.com Gold_Gerb

    Intelligence & Productivity are not rewarded. You get what you pay for.
    https://medium.com/the-blueprint/if-your-employees-are-stupid-thats-your-fault-42de929e6a95

    “You pretend to pay me, and I will pretend to work”.
    Bunch of digital junkies – GG

  • https://evilspeculator.com Sir Mole III

    ASSets – LMAO!! :0)

  • https://evilspeculator.com Sir Mole III

    My point actually. You have to spend highly elevated amounts these days to get decent support. Anyway, just a personal observation after having dealt with technical support since the mid 1990s.

  • http://gerb-reloaded.blogspot.com Gold_Gerb

    We’re a dying breed. If it isn’t on a App, god help them.

  • Sp00nman

    I think this is also just a result of the economy humming along for so many years and doing well. It’s a natural human tendency to get lazy/complacent. I think this trend is common across many industries.

  • BKXtoZERO

    I noticed in my 20s that older people (the war generation) had a better vocabulary. Then in my working career I noticed that all the older techs/engineers were smarter/better…. I thought of myself as the last generation to have a decent amount on the ball. Now the company I presently work for (of course) hires the best of the best…. so I see all these modern day whiz kids, but the general slope of the land, the general population of kids has gone down hill in terms of mechanical aptitude and ingenuity.

  • TimeToPanic

    Deliberate ploy of the controllers, dumb down the sheeple by crap education, fill their heads with entitled liberal warmfeels, and invite hoards of low IQ voters to invade the West. The consequences will not be just poor tech service, but the collapse of Western civ, it’s more fragile than most believe. Chew these black pills well, hard to swallow.

  • TimeToPanic

    Or drop n pop then drop bigly.

  • http://gerb-reloaded.blogspot.com Gold_Gerb

    A moment of silence…for the assault to newer highs.
    Bobble heads, prepare your Bull worshiping scripts.

    https://uploads.disquscdn.com/images/0bf80e66c080920f9a3f2dab19a997004f7ba3d0462114b8a8fc7d86f495a0cb.png

  • Mark Shinnick

    To become owned by China; Hawaii already annexed into official govt. maps.

  • BKXtoZERO

    L TVIX 49.8

  • Jason13

    Congrats to those on the Natty Gas. Missed that one.

  • http://gerb-reloaded.blogspot.com Gold_Gerb
  • http://gerb-reloaded.blogspot.com Gold_Gerb

    off to lunch! (in search of assets, snort)

  • https://evilspeculator.com Sir Mole III

    The present education (indoctrination) system played a huge role in all this.

  • https://evilspeculator.com Sir Mole III

    Not a bad perspective actually.

  • https://evilspeculator.com Sir Mole III

    GG – why do you keep removing your comments? I was trying to respond.

  • Sp00nman

    Ya I think it’s a common problem after long bull markets. As buffett says, a rising tide raises all ships. You see this a lot in the trades/construction field. Even the worst contractors are busy these days (at least in a lot of metro areas here in the US). My point is even the “worst” are getting “rewarded”/paid.

    On top of that, you have kids going to school and taking on lots of debt for virtually useless degrees because “hard work” like blue collar type jobs are now looked down upon.

    Personally, I think it’s a shame how many bright minds are “wasted” going into finance and other VC type ventures like developing the next app that can make your smart phone tickle your balls and make you feel good, rather than focusing on real problems, but everything is short term thinking these days.

  • randomuser6789

    slight divergence on zero now playing out.

  • randomuser6789

    SPY volume quite low.

  • randomuser6789

    You guys are all familiar with VIX Buy/Sell signals with the 2.0 BBs. If you shrink the BBs to 1.4 you got a LOT more signals. A Sell signal appears to be in the works now with today as day 2.

  • Jason13

    Yeah its like theyโ€™re waiting for something but I see the divergence and sellers are trickling in…

  • http://gerb-reloaded.blogspot.com Gold_Gerb

    slowin down old man.
    ๐Ÿ˜‰

  • http://gerb-reloaded.blogspot.com Gold_Gerb
  • BKXtoZERO

    chart! (I am at work. Doing…. work) Thanks!

  • http://gerb-reloaded.blogspot.com Gold_Gerb
  • Julie 35 – 25 – 36

    SPX 2573 is the line in the sand. A bearish close below will add more short
    JULIE

  • randomuser6789
  • https://evilspeculator.com Sir Mole III

    Nice call mate.

  • https://evilspeculator.com Sir Mole III

    No way!

  • Julie 35 – 25 – 36

    SPX Guys The rising wedge about played out Bearish chart pattern in Red Pig Down
    JULIE

  • http://gerb-reloaded.blogspot.com Gold_Gerb
  • http://gerb-reloaded.blogspot.com Gold_Gerb

    still practicing your systema? and knife stuff?

  • Julie 35 – 25 – 36

    GG A trend line can be drawn from your starting point but should connect the 2573.51 low You connect the previous low of another high A lower trend line has been broken
    JULIE

  • Ted

    Investors are shrugging off the poor data out of China. Long term bonds are selling off producing a lift for the financials. The Yen is also being sold = risk on. Until that changes Equities won’t dump.

  • Julie 35 – 25 – 36

    BAC is up today stalling at a very important resistance
    JULIE

  • Mark Shinnick

    You delete some cool POV ๐Ÿ™

  • http://gerb-reloaded.blogspot.com Gold_Gerb

    oh, you think this is *my* chart? I steal it. I have no control over the lines they put in.

  • Julie 35 – 25 – 36

    LOL! A thief in the night !
    JULIE

  • http://gerb-reloaded.blogspot.com Gold_Gerb

    where!? I try very hard to not remove others. especially you.

  • http://gerb-reloaded.blogspot.com Gold_Gerb

    outsourced. they do a pretty good job. most of the time.

    (it’s on public stockcharts. fair game domain)

  • evilasevildoes

    $EWU 50K FEB.15, 2019 PUT SPREAD 30/27 at 0.48$ debit #UK

  • Julie 35 – 25 – 36

    SPX This is one gasping bull on this rally … About to O Roark !
    JULIE

  • http://gerb-reloaded.blogspot.com Gold_Gerb

    it’s a trap.

  • Julie 35 – 25 – 36

    Checkout SPY volume Almost more than Thanksgiving It’s a choke !
    JULIE

  • http://gerb-reloaded.blogspot.com Gold_Gerb
  • Julie 35 – 25 – 36
  • Ronebadger

    Volume precedes price?

  • Julie 35 – 25 – 36

    RB There are people that say volume does not count anymore. Wrong … volume is the life blood.You can see the volume patterns SPY since the October decline. Volume declining on bounces and increasing on sell offs A stock or index can fall under it’s own weight if not enough volume
    JULIE

  • Wave_surfer

    slowing price action, rolling top, lower momentum, lower volume..
    I got out of my longs on late Friday.
    I am in all cash now waiting for a better opportunity to enter.

  • BKXtoZERO

    I added to TVIX at 48.5 while at work. Looks like I will hold too

  • Ted

    IWM small caps leading lower as bonds and the Yen catch a bid.

  • TimeToPanic

    I just bought some more QQQ puts. Will buy my final lot if there is a pop into the end of the week.

  • Ted

    Possible short term target. Purple vertical lines of equal length. 5 min. chart https://uploads.disquscdn.com/images/90f3010b15bb8a8e5d4409ec887b68204a3d1d7ac9ce48a8d385466ef9244e5c.png

  • Sp00nman

    I agree volume matters, but it’s definitely relative. There have been times where the market will grind higher on lower volume, and if you’re sitting short waiting for a reversal, it may not come. I’m speaking from experience.

    With that said, an advance on steadily declining volume could certainly be a tell that momentum and bulls are getting tired.

  • BKXtoZERO

    I too have lived the dream….tire tracks all across my back

  • evilasevildoes

    lol

  • evilasevildoes

    lmaof

  • Goldenbeachbum

    Volume does matter but it’s certainly not needed for an advance. Look at the lower than average volume grind higher in 2017. The same in mid-2018 off the lows in first quarter. Agree with SP00, it definitely relative.

  • http://gerb-reloaded.blogspot.com Gold_Gerb
  • http://gerb-reloaded.blogspot.com Gold_Gerb

    I’m either insane, or genius, or Both.
    I’m staking my entire Gartman rep on the line.
    =P

    https://uploads.disquscdn.com/images/d458c5471da0a8835984457ccb41798d8545d47dcae980513226ef374ba7f55d.png

  • http://gerb-reloaded.blogspot.com Gold_Gerb

    thanks Sharon, Happy New Year.

  • http://gerb-reloaded.blogspot.com Gold_Gerb

    I’ve got two indicators (chart) showing tomorrow should roll over.
    but you know what?, it wouldn’t take much to squeeze up to the next line.

    yes, similar to December open.

    I can here them now..
    “just a few more points higher, I swear – I’m out. I can’t take another Xmas eve drop. EVER”

    https://uploads.disquscdn.com/images/f28f75f0d77f8919f3e7b0773d0d29c0d7ade7caae348c8a78a41fc81af413f8.png

  • Ivan Hrusovsky
  • http://gerb-reloaded.blogspot.com Gold_Gerb

    can you switch to magenta? orange is getting kinda old.
    ๐Ÿ˜‰

  • Ronebadger

    OH..yeah…I’m officially retired…

  • TimeToPanic

    QQQ.
    Turned down from 50 day MA and a fib and the falling channel and failed rising wedge and RSI rolled over at previously dodgy level and oscillator at interesting point. It’s just above my neckline, but could be bang on it, depends on how it’s drawn. https://uploads.disquscdn.com/images/7804bda4a6bbba2d326d27a2c71834b763a98876fa3ee4fb73677abf4e2494bd.png

  • Darkthirty

    http://brucewilds.blogspot.com/2017/12/economic-evolution-makes-many.html Interesting read…probably because it follows what I perceive is/has happened to the “market”

  • TimeToPanic

    Nice, any plans?

  • Jason13

    Gappy Gilmore again tomorrow morning. This time maybe up.

  • TimeToPanic

    Brexit vote expected 22.00 GMT 15th, out of market hours.

  • ridingwaves

    congratulations!

  • ridingwaves

    in 2007-8 you had all sorts of fed, govt and treasury stick saves, China is now the shorts biggest issue, they can throw all sorts of stick saves to keep global markets elevated or static….

    I expect more of this…..futures up on the indexes….

    I saw a headline from financial news source in big font and on front page that stated the SNP 500 hasn’t started the year off this good since 2006 – this kind of headline does make me think a lot about what happened afterwards over next 2 years….and how to trade a similar cycle….

  • evilasevildoes

    some zany moves

  • https://evilspeculator.com Sir Mole III

    Ronebadger tomorrow morning: Get off my lawn, you damn kids!!!

    https://www.youtube.com/watch?v=NelBNtNm8l0

  • https://evilspeculator.com Sir Mole III

    BTW, congrats buddy. Any big plans? Bucket list? ๐Ÿ˜‰

  • Ronebadger

    I just started…give me time…I have plenty of time…