Tuesday, March 10, 2009

Why am I perplexed?

This is all based on the assumption that 4.5 would be a brief one to two week recovery and not protracted over a significant period of time. Let me start with the VIX. If the VIX breaks down from the triangle then the pattern is broken. This bull pennant (with significant violation) becomes the red channel for the most part or possibly a descending triangle. Or on the other hand do we call it a bear pennant that is breaking down which might lead to the assumption that 5 is over and the 666 bottom on the SPX is in? I fully understand that all this can turn at a moments notice (and it will have to as you will see in my conclusion), but the daily indicators on this chart (combined with other factors like CPC and SPXA50) are showing a potentially significant move North for the market. So what happened to wave 5? Why is it not the VIX bouncing off the lower black trend line and up thru to the gaps at 54 and 71 that should mark the ultimate end? The potential failure of this triangle bothers me.

One last point on the VIX. On the weekly chart there is a positive divergence on the MACD histogram, the S Sto is turning up and trying to cross the ema 20 (one of my fav indicators for a turn), ROC is at 0 and RSI is at 50. This would indicate a bullish turn for the VIX which I'm assuming is going to whipsaw a weekly chart? This actually fits with the VIX remaining in the wedge. Go figure in this market. I guess my solace is that Kenny proved he is human and so did Daneric at the bottom of 5.3.5. Even Dano after a magnificent call all the way down was looking for the VIX pop to the first gap. Maybe he was left a little miffed as well? I have no idea how either of them do it. They are incredible.

Now lets look at a longer term chart of the SPX. This channel is widely accepted and has been seen on many charts. I assumed the back test of this channel would mark the top of 4.5 and the turn to the bottom. SPX paused at the channel and in the last hour today made the push to close in the channel. That is a big powerful move. Another unexpected event in a weak market. This move opens up a door of opportunity for SPX to climb away. The rising wedge should pull the SPX back some and then guess what forms on the next move up? A pretty impressive H&S pattern that would throw SPX up to the 770 range with a roughly 50 point move. I have mapped out on the SPX chart how I see the zig-zag playing out to my perceived 774 top.
So why am I so confused? My pretty picture that I had all worked out in my mind blew up in my face and now I have no clue as to how this will play out. Maybe being a perma bear got me in this mess and I am missing something. I thought the back test of the channel and the VIX bottoming out at the wedge would make for a nice situation to cause the reversal for 5.5, but NOOOO. Now were going into uncharted waters that really make no sense to me.
Based on the potential move of the SPX into the channel and the potential breakdown of the VIX, I believe that it is going to take a spontaneous move by the markets that will cause a capitulative move that no one will be ready for. Something external will have to drive the market to lower lows or we have an extended 4.5 and 5.5 that takes another three months to play out. That can't happen. So what's gonna blow up the market? We'll speculate on that another day.
Guess I'll have to keep the learning hat on for a while longer and rely on Daneric the great and Kenny to guide me thru the troubled waters again. Comments and suggestions or any therapy ideas are welcomed. Keep your powder dry and good luck.

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