Thursday, December 4, 2014

VIX and SPX Daily Charts

The SPX prints three recent higher highs as shown by the red circles but interestingly, for yesterday's new all-time record highs in stocks the VIX did not print a lower low. For the rally, one would expect the VIX to be sub 12 right now. Low VIX numbers correspond to complacency and fearlessness in markets which identifies tops while higher VIX numbers show fear and panic developing or in place creating a market bottom. The mid-October stock market bottom occurs with the VIX signaling fear above 30.

Today is a big day especially with the imminent ECB announcement. The SPX and VIX will decide the next move in the red circles on the right of the charts. If VIX holds 12 and shows buoyancy above 13 the stock market top is likely at hand and volatility will continue higher. If Draghi delivers the dovish goods this morning then the VIX will likely drop to an 11-handle and lower and the SPX will be in the 2080's moving higher.

The VIX 200-day MA is a critical market bull-bear signal. VIX is at 12.47 under the 200-day MA at 13.80 so the bulls rule the stock market. Bears got nothing unless they can move the VIX above 13.80. Keybot the Quant remains long the markets and is tracking the VIX 14.48 level as the key bull-bear line in the sand where the algorithm would likely flip short. Market bears need higher volatility or they got nothing. This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here. Consult your financial advisor before making any investment decision.

Note Added 7:49 AM: The ECB leaves the three key rates unchanged as was expected. The more important news is the Draghi Press Conference in forty minutes at 8:30 AM which will probably send stocks wildly in one direction or the other depending on how much he discusses the proposed full-blown QE sovereign bond purchasing program.

Note Added 9:59 AM:  Draghi lays an egg at the press conference stretching out the time period to announce new stimulus measures into the first-half of 2015. Traders were expecting Draghi to speak more dovishly and even announce plans for full-blown QE. Germany must be providing strong pressure behind the scenes. The ECB decision does not go as planned with the euro briefly jumping above 1.24 (euro was under 1.23 only a few hours ago). Euro is at 1.2387. European indexes turn negative. Europe needs the lower euro to stimulate the economy especially exporters and manufacturers. US stocks begin on the downside although the Nasdaq is holding up on the positive side. The VIX is at 12.54 flat on the day. So the bears do not have much strength if they cannot lift volatility. At the same time, the bulls are not pushing volatility lower to help their cause. Bears got nothing without volatility moving above 13 and higher.

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