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Saturday, February 4, 2012

VXX Volatilty VIX Futures ETN Daily Chart Oversold Falling Wedge Positive Divergence

VXX is a method to play the upside in volatility. Long players that enjoyed the recent rally can provide protection of those gains via puts, or to go long volatility, or even explore inverse index ETF's, as well as many other methods. VXX moving up corresponds to the broad markets moving down. When volatilty moves higher this indicates fear growing in the markets and markets are selling off. As volatilty drifts lower, like now, day after day, more and more complacency drifts into the markets, long traders become lulled into a siren song of extended bullish markets as far as the eye can see. Just when traders are sleepy-eyed and comfortably long the markets, wham, a hard slap to the face occurs with volatilty sky rocketing higher, waking traders from a bullish slumber and knocking them off the recliner.

The green lines show positive divergence which is VXX bullish (market bearish). Note the RSI is slipping a wee bit lower but it has no lower to go and can be considered to be bottomed here. Nonetheless, after a launch occurs, VXX should come back down again to satisfy that pesky RSI, and at that time the indicators will likely be positively diverged again for further VXX upside (market downside) for the weeks ahead.

Keystone has been looking for volatilty to jump for the last couple weeks or so, like waiting for Godot, but VXX appears all fueled up on the positive divergence launch pad, and set to rocket higher. This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here or any links connected to this information. Consult your financial advisor before making any investment decision.
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2 comments:

  1. AnonymousFebruary 4, 2012 at 2:21 PM

    Thank you for explaining RSI! When RSI goes over 70 on daily do you usually expect a retest of highs? Thanks for all your help.... Again. Chuck

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  2. Keystone SpeculatorFebruary 6, 2012 at 6:31 AM

    Hello Chuck, RSI shows relative strength and as it moves above 70 and 80% it says the stock or ticker is overbot. Selling occurs as the RSI rolls over and drops back down thru these levels.

    By comparing price peaks to price peaks, to the corresponding peak to peak with the RSI bumps, you can determine if the ticker is long and strong or if it shows negative divergence indicating a stronger smack down on tap.

    In the chart above, RSI is down in the basement, so the same idea holds on the low side. When RSI drops down under 30 adn 20% levels, this is very oversold, so the ticker will need to bounce. Also, compare the low to low price moves to see if positive divergence exists and in the chart above, the RSI sits at the lowest possible values so it is moving flat while price is falling, hence, positive divergence.

    Volatility moves opposite the broad markets so a bounce in volatility corresponds to markets selling off.

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