Is the VIX Telling Us Something?

I got an email tonight about the VIX from a subscriber, as you know I've been watching the low levels in the VIX-which trades inversely to the market. Low reading indicate complacency and typically lead to a sell-off on the market.

However his question dealt with accumulation via my 3C indicator and the largest open interest contract at $45, the VIX is currently at $21.99. Apparently options expiration will be Friday the 17th of September, next week. A move up this high and fast in the VIX would fit perfectly with our "malicious bounce" and the consequential "Judo Concept".

For newer members, we saw the bounce accumulation as early as August 25th, by the 30th I was detailing that I thought this was not a simple oversold bounce because of the institutional accumulation 3C was showing, but a malicious bounce used to throw traders off, to squeeze shorts which would propel the market higher. Eventually the longs (as human nature is optimistic in the market) would soon buy the bounce as it made higher highs. There's a lot of talk of this inverse head and shoulders bottom pattern which is really part of the larger head and shoulders top. Volume confirmation is more important for a H&S bottom then a top and it's not there, it is there perfectly for a H&S top though.

So the "malicious bounce concept is to squeeze shorts, pushing the market higher, then to inspire longs to enter the market. Finally we were looking for a new high and we still may get one more higher high, but what we have now and Thursday's intraday highs will do. The bounce is malicious because of the intent.

Which brings us to the "Judo Concept" in which you use your opponents energy against them. So the first major crack in the bounce will see some longs sell, as they sell prices fall, which puts more longs at a greater loss and the snowball effect takes over, this is very typical of false breakouts. As prices continue to fall due to more supply then demand, the shorts enter the market with further selling and before you know it, our bounce has created a snowball effect sell-off.

Last week 3C showed us institutional money selling and shorting into higher prices, so they are set for a sell-off and the VIX chart is another piece of the puzzle that increases the probabilities. We Trade the probabilities and objective market data, not gut feelings or speculation.

So here's the VIX chart showing accumulation. If it does what it did in April, we should see on heck of a sell-off.

Paying MY Respects....

There use to an incredible video with Enya's Only Time, unfortunately the music was disabled. I posted the video every year and could not get through it without choking up. There are now hundreds of videos and I could spend all day looking for the right one, I think that's not the point though.

This tragedy didn't touch my family members thankfully, but so many innocent people around the world can not say the same. I was at work the morning of September 11, 2001 when I received a phone call from my mother telling me one of the towers had just been hit. We all immediately ran to the TV and I recall my boss's wife was hysterical because her cousin worked in the financial district. For 4 hours there was no way to get in touch with him. We all took turns holding and consoling her and watched in disbelief as the second plane hit the second tower. We all knew they'd come down, but seeing it happen was unbelievable. Almost a year to the date I was on the observation deck. Luckily through family, my employer's family were fine.

My ex-wife's family (she too is Hungarian) were staying with us. We had planned a trip, we were to go to New York City, only several days before, but decided on the Grand Canyon instead. I think had we chose New York, had our flight plans deviated by 2 days, we might, as tourists have been in those towers. Her parents speaking no English saw this on TV and thought it was some sort of an action film. Imagine that. I don't fault them, they had no way to understand what was being said, but it was that unreal that they dismissed it as an action film.

Being we lived in Deerfield Beach and we both worked in Boca Raton, we were sort of one of the epicenter's of the investigation. I recall that night (9/11) watching television and we saw a motel just 6 blocks from where we lived. There were all kinds of emergency response vehicles there and we saw on television a body bag on a stretcher being wheeled out in the parking lot, we immediately drove over and did not observe anything else. Apparently the terrorists had stayed at the motel. We never heard anything else about the body bag being wheeled out of the motel. I assume it may have been a potential hijacker that may have lost his nerve and was murdered. The next two weeks the FBI was confiscating security camera film from every restaurant and store in our neighborhood.

Even more stunning, my ex-wife had worked for SunTrust Bank in Boca Raton. I remember maybe a few weeks earlier her telling me about a man who seemed to be from the middle east, he had been very rude to her and had cashed at least one bad check which is a big deal for a bank teller. I believe she waited on him twice. Later in the week after 9/11 an article ran in the Sun Sentinel, one of our bigger local newspapers about the terrorists having a connection to SunTrust and when their faces were released, my ex-wife immediately identified the man whom she had told me of earlier-one of the hijackers.

I can't remember exactly how long after it was, but the first Anthrax attack occurred approximately 2 miles from where we both worked. Our local post office had also been shut down because they detected Anthrax in the equipment there. Every day going to the mail box was frightening as you had no idea if your mail had been tainted by the postal equipment.

So I guess the tragedy of 9/11 and the aftermath did touch our lives in a tangental way.

In any case, I post this video in remembrance and respect for all the innocent, whose lives were forever changed on that day and the days and weeks, even years to follow. I just wonder why 9 years later there are still so many unanswered questions and unresolved business. Who was pulled from that motel, who was really behind the Anthrax events, why Bin Laden still fills his lungs with air?

With utmost sincerity and respect,

Brandt