For most of the year, I believed that the March 15 low was the low for the year. It may remain the low for 2013, but a possibility exists that it may not be.

Let me explain.

First, the VIX is coming into its Master Cycle “A” turn window. I had surmised that it might have turned on October 18, a very early Master Cycle low (7 months). Today’s impulsive downside action suggests there may be more decline to come, so The next two pivot days are Wednesday, November 6 and Friday, November 8. Considering how quickly Minor Waves 1 and 3 were formed, Minor Wave 5 could be complete on either day. I have changed thr Elliott Wave interpretation to reflect that possibility.

Wednesday would complete 60.1 months from the VIX high on October 24, 2008. (Yes, it topped nearly a month prior to the market low on November 21, 2008.) So that would be my preferred day for the low. Remember, lesser cycles are superseded by greater cycles. 14.45 marks the top of Minor Wave 5 and three of the 5 waves appear to have been already formed on the way to its final low. 10.73 marks the Cycle Bottom, but it appears that VIX may not go that low. I expect Wave X may be exceeded, but it is hard to say whether the March 15 low at 11.05 will be exceeded or not.

The SPX Cycle Top is at 1768.43. A daily reversal pattern is usually formed by the index piercing the Cycle top, then retreating beneath it, after which it cannot close above the Cycle Top again. That is the case so far. You may be wondering why the VIX is still declining as SPX appears to be topping. The answer lies in the fact that this is the 4th longest bull market in history. The bears are simply worn down. Usually the VIX is anticipatory, meaning that it precedes making new highs ahead of the SPX rolling over. VIX measures the cumulative out-of-the-money puts vs. the out-of-the-money calls over the next 60 days. This means virtually no one is hedging the market against a decline. Hedging is an activity that takes place ahead of selling, acting as a protection against a sudden turn in the market.

This is not a good sign, since there will be no time to hedge in a sudden downturn. I just had a telephone call from an investor selling SPY 160.00 and 165.00 puts. He claims that he would sell them all day long, but there are not a lot of takers. Talk about counterparty risk!

Perhaps the market may be waiting for the Twitter IPO. Twitter plans to close the books on the IPO on Tuesday at 12 p.m. EST (1700 GMT), a day earlier than scheduled, because of strong demand, according to two sources with knowledge of the process. The IPO is set to price on Wednesday, with shares to begin trading on the New York Stock Exchange on Thursday. Could this start the market plunge?

Regards,

Tony

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Disclaimer: The content in this article is written for educational and informational purposes only. There is no offer or recommendation to buy or sell any security and no information contained here should be interpreted or construed as investment advice. Do you own due diligence as the information in this article is the opinion of Anthony M. Cherniawski and subject to change without notice.

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