VIX Volatility Weekly Chart Printing Multi-Year Lows Signaling Significant Market Top

The volatility 'fear gauge' verifies the complacency seen with the CPC put/call ratio. The green circles show rampant fear and panic that identfies market bottoms. Traders are screaming to 'get me the heck out', and, of course, they sell at the wrong time. That panic (high VIX) is exactly when to buy equities.  The red circles show complacency in the markets. The bulls are drinking wine each day, throwing confetti, and have no cares or worries that markets can ever go down. Who can blame them considering all the recent and projected global central banker quantitiative easing intervention? Oddly, however, the VIX and CPC charts fly in the face of the standard mantra "Don't fight the Fed." These two charts say that the uber bullish euphoria and lack of fear is off the charts now identifying a significant market top.

The indicators are all setting up with positive divergence (green lines) which bounced the VIX three weeks ago, causing the markets to sell off, but the ECB saved the day last week with their bond-buying intervention.  Note that VIX price has not yet come down for a lower low as compared to three weeks ago so this tight time frame cannot be blessed with positive divergence to guarantee the launch right now; watch the green circles moving forward. Considering the positive divergence from March to August already places a bottom for the VIX moving forward so the VIX price does not have to come down fruther if it does not want to. The VIX can simply explode higher from here. If not, and price prints near the green dot, then that will likely guarantee the rocket launch at any time.  Higher VIX means lower equity markets. Another important point is that from the March low to the August low, which created the market top three weeks ago, the VIX moved lower, as the SPX moves higher. But, in the move thus far over the last three weeks, where the SPX jumps higher printing a higher high in price, the VIX has not yet come down to print a lower low, which would be the green dot. This divergence hints that the SPX price move higher is exhausting.

The VIX typically bottoms in August which is a multi-year seasonality consideration and supportive of a higher VIX moving forward. Projection is for a sustainable move higher in VIX coming at any time, any day, likely within the next week or two, which will send markets lower.  Therefore, either the German vote may surprise markets on Wednesday, or Chairman Bernanke on Thursday.  The vast majority of traders are expecting QE3 (not Keystone). Thus, either the Fed does announce a substantial program, but the markets have already priced it in, and the market tops and rolls over, or, the Fed disappoints and markets drop in earnest. If it is all happy news this week, and markets are in a bullish mood again like last week buying up equities, the green dot area will likely print and then that action will place the market top. In its most basic form, referencing the thick green and red lines, traders are best suited in buying the equity markets when the VIX moves above 25 and higher since the fear is growing exponentially, while it is best to exit longs taking profits and go short when the VIX prints under 15.  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.