August 6, 2018

Volatility Report August 6, 2018

The outlook has not changed on the stock market, just waiting for the other shoe to drop. While there is another COT date on the 8th, the expectation has been for a mini panic low in the first two weeks of August, no change.

“The past is prologue,” in other words, the historical context flavors the traders decision making today. For example, in 2010 at the beginning of the bull market, the bad news was good as the market climbed its “wall of worry.”

Today after ten years of bullish price action the cycle has moved from bargain hunting to value investing to growth investing to momentum investing and when liquidity drives up the market is on a hair trigger.

All of our markets today are on a TE Rule #2 some both S-T and I-T making them all able move into dynamic trends with little or no media event to set it off. Our TE rule number # indicators just not a high rate of change trend but one with an expanding high to low range for the week and the day until the next Techcnail event.

The CBOE VIX index measures expected volatility (V). The VIX index has a directional bias because the shares fall faster then they advance.

So when it is overbought, it reflects panic in the stock market and puts prices near a low. An oversold VIX indicates complacency is leaving the market vulnerable to a sell-off.

In 2017, the year of the lowest volatility in history, oversold readings, low extremes of V, preceded rallies. In 2018 they are back to normal the extreme lows are associated with peaks.

In this chart, you can see the change of trends at the extremes and today that the amount of “fear” in the market is trending higher, a bearish sign.

The peak at the end of January 2018 was a FOMO climatic top; you can see it in the extreme high in %BB-VIX. Today, the topping process is different, and traders should expect the next leg of the bear market to start.

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