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Monday, October 11, 2010

10/11/2010 Market Recap: VIX to VXV Ratio Hit Record Low

Long-term 2 of 2 are BUY  
Intermediate 3 of 3 are BUY 3 of 5 are NEUTRAL SPY ST Model in BUY mode; Non-Stop in BUY mode.
Short-term Model is BUY 5 of 6 are NEUTRAL The trend is up, I hold partial long position over night as the mini price target hasn’t met not because it’s safe to do so.
10/10-10/11 10/07 : 10/08 10/11 Next pivot date: 10/05 – 10/11
BULLISH 0.1.1 SPX Intermediate-term Trading Signals: Head and Shoulders Bottom breakout, target 1242.
09/27 Market Recap: 9 POMO within 20 trading days means 14%+ up in 3 months.
10/01 Market Recap: Positive September plus mid-term election means 11%+ up to year end.
10/05 Market Recap: 16 more trading days upswing? See 10/07 Market Recap, I have doubt now.
1.2.0 INDU Leads Market: mini SPX target 1173.
BEARISH 1.0.6 SPY Unfilled Gaps: 19 unfilled gaps, the max is 19.
09/23 Market Recap: SPX down 3 days means 79% chances to close below 09/23 close in 10 days.  Failed!
09/27 Market Recap: AAPL is now too stretched.
10/08 Market Recap: AAII bull ratio (4-week average) too bullish.
10/08 Market Recap: Commercial (smart money) short Nasdaq 100 heavily according to COT Report.
6.3.1b Major Accumulation Day Watch: 2 consecutive down days after MAD was a bad sign.
6.4.3a SPY Bearish Reversal Day Watch: Bearish Reversal Day, pullback?
10/08 Market Recap: Up off-season usually means down earning season.
10/08 Market Recap: Institutions are selling into strength.
6.1.9a Extreme ISEE Index Readings Watch: SPX will close below 1165 within 2 days?
*6.2.3 VIX:VXV Trading Signals: Record low.
SPY SETUP ENTRY DATE STOP LOSS INSTRUCTION: Mechanic signals, back test is HERE, signals are HERE.
Non-Stop 09/07 L N/A Partial profits on 09/24.
ST Model 09/24 L Breakeven


The only story today is that VIX:VXV hit a record low which translates into SPX price is to say that SPX price will be much lower than that of now in 3 months. However, see chart below, since the mother nature has the tendency to make things symmetrical, so there’s a chance that VIX:VXV mirrors what happened in October 2008 which means it will go extremely extremely low and translates into SPX price is to say pretty soon, we’ll see SPX all time high and perhaps SPX 2000 something is not a problem at all (hmm, I think I’ve seen my yacht to be, really big and beautiful…). Well, which way will it be, use your common logic, but don’t forget, in this new era of YES WE CAN, trading really needs some imagination so perhaps a yacht in the next 3 months may not be a dream at all?


Personally, all I can tell you (as I’ve been doing for years here in my blog) is the history. From the chart below, at least recently when VIX:VXV is extremely low, it’s not very pleasant for bulls thereafter.


I know, inevitably we’ll see some reports saying the dramatic drop of VIX today was due to some other factors. Well, the statistics below is from sentimentrader for VIX last Friday’s readings, it says according to the history, a very low VIX is not very friendly to bulls. So it seems to me whether the VIX drop today is for other factors or not, doesn’t matter because VIX was already low enough to be considered as not so bull friendly.



Maintain the intermediate-term bearish view. Below are summaries of all the arguments I’ve been blah blah recently:

  1. As mentioned in 10/08 Market Recap, commercial (smart money) holds record high short positions against Nasdaq 100.
  2. As mentioned in 10/08 Market Recap, AAII bull ratio (4-week average) is way too bullish.
  3. As mentioned in 10/08 Market Recap, institution selling keeps increasing.
  4. As mentioned in 10/08 Market Recap, statistically, a strong off-season could mean a weaker earning season.


According to Stock Trader’s Almanac:

  1. Monday before October expiration, Dow up 24 of 29.
  2. October expiration day, Dow down 4 straight and 5 of last 6.

For October Seasonality chart please refer to 10/01 Market Recap.

QQQQ UP 4.1.1 Nasdaq 100 Index (Weekly): NDX to SPX ratio too high.
CHINA   Confirmed breakout, very bullish.
EMERGING UP 4.1.6 iShares MSCI Emerging Markets (EEM Weekly): EEM to SPX ratio too high.
CANADA UP TOADV MA(10) too high and has negative divergence.
GDX UP 4.3.1 Market Vectors Gold Miners (GDX Weekly): GDX to SPX ratio too high.
3.2.1 Market Vectors Gold Miners (GDX Daily): Bearish Engulfing, pullback?
FINANCIALS UP 4.4.2 Financials Select Sector SPDR (XLF Weekly): Head and Shoulders Top in the forming?
REITS UP 4.4.3 Real Estate iShares (IYR Weekly): Home builder is lagging.
MATERIALS UP *Bearish Reversal Bar, pullback?
  1. Please make sure you understand how to use the table above. The purpose of this report is to provide info so contradictory signals are always presented.
  2. Conclusions can be confirmed endlessly, but trading wise, you have to take actions at certain risk level as soon as you feel the confirmation is enough. There’s no way for me to adapt to different risk levels therefore no specific buy/sell signals will be given in this report except the mechanical signals such as SPY ST Model.
  3. * = New update.
  4. Blue Text = Link to a chart in my public chart list.
  5. LA = Lateral Trend.
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