Trap Like Pattern in VIX
Stock-Markets / Volatility Jul 27, 2010 - 01:19 PM GMTWe have to be impressed with the market's resiliency today after hitting new recovery highs, because weakness thereafter has been very much contained, at least so far. That said, however, I am "concerned" about the "trap-like" pattern that has developed in the hourly Volality Index (VIX). Let's notice that the VIX made multi-month lows this morning at 22.70, but has since climbed back above 23.20, which so far has "trapped" VIX bears (SPX bulls).
In the event the SPX rolls over into a deeper correction later this afternoon or in overnight trading, and the VIX climbs above 24.70/80, the VIX will have put in a powerful upside reversal immediately after violating a major Double Bottom June-July low. Such a scenario is all the more likely given the glaring downside failure of RSI momentum to confirm the multi-month low in the VIX. Let's watch this relationship closely in the upcoming hours. MJP 7/27/10 1:30 PM ET (SPX 1111.94 and VIX 23.26)
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By Mike Paulenoff
Mike Paulenoff is author of MPTrader.com (www.mptrader.com), a real-time diary of his technical analysis and trading alerts on ETFs covering metals, energy, equity indices, currencies, Treasuries, and specific industries and international regions.
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