Complacency in the market may be coming to an end, as many of you know, the VIX/VXX trade inversely to the market, so today's biggest move in 3 months in both is certainly something worth noting as all of the pieces have been falling in to place since my bear market rally post last Sunday.
First the VIX
Today was the biggest percent gain in the VIX in exactly 3 months, it decisively broke the downtrend line (remember the VIX trades mirror opposite the market so a rising VIX accompanies a falling market, yet the price loss today did not reflect the severity of the move as VIX did. The underlying conditions are much worse then the percentage loss today suggest,
The VXX moved up on an enormous leading positive 3C divergence on a 60 min chart! Huge accumulation of volatility as if someone knows something.
VXX 30 min 3C supports the accumulation.
As does the 15 min chart, both locally and long term.
This is the first break out of the Trend Channel for the VIX since the market rally began, the red square doesn't count because it did not close above the trend channel, also note the close within range indicator has shown the VIX closing higher and higher within its daily range.
The VIX also has a strong RSI positive divergence
Here's the daily 3C VIX positive divergence, this one stronger then the last and the last was at the July drop in the market of 16% in 2 weeks.
The VXX also broke its trendline on the highest percent move in exactly 3 months.
This was the highest volume for the VXX since September 2011.
The VXX also broke out of the Trend Channel suggesting the downtrend is over and since it trades inversely to the market, that suggests the uptrend in the market is about over.
The late day rally attempt got no support from high yield credit as it remained at the day's lows.
I suspected this move was bogus and some sort of possible bull trap, as you can see and I mentioned this earlier in the day (That I would be interested to see if there was any support for the move or if it was a manipulation) the Euro had nothing to do with the move up as it remained virtually flat.
High Yield Corporate Credit did not support the late day move either, it actually sold off to new lows in to the move. Today was the single worst day for High Yield Credit since before Thanksgiving, as I suspected earlier in the week, de-leveraging and short selling seem to be the theme by smart money as the NASDAQ's short interest is at 10 year lows and the NYSE's is at 4 year lows, dumb money remains wildly bullish, having been seduced by what is almost certainly a bear market rally as I laid out last Sunday. The move in credit is very significant as Credit Leads Equities. Don't forget we have seen a lot this week, the ATR of the market's rally cut in half when it should have been rising if the rally were healthy, massively negative 3C divergences, the Cats and Dogs rally that almost always precedes a move down in the market, and numerous other indications.
Late day, the rally was supported almost exclusively by defensive sectors, especially utilities, Staples, Basic Materials, Industrials (Blue Chips stocks), only financials showed any risk, for the first time this week Technology went out of rotation and this as the market tried to rally at the close.
The first time the SKEW Index rose, I caught the rise before it started by seeing what others missed, a rise in the Rate of Change before the move higher became apparent, I mentioned that again late this week and the SKEW Index is near its highs again, making a big jump from yesterday at the red trendline. The SKEW Index tries to measure the probability of an improbable event, specifically a black swan or market crash, the higher SKEW rises, the higher the risk of a market crash. $115 is the average, $144 is one of the highest reading it has had historically in over a decade of CME research, many of the high readings led to market crashes, we are now at a very high level that should be making bulls very nervous. Like I said, the last month has been like picking up loose change in front of a steam roller and even after the market breaks, the bulls will still buy the dip, bear market rallies are fierce and psychologically like a super weapon, but we'll cross that bridge when we get to it, but every metric we have seen this week including today's breadth post have all pointed to a internally very weak market, a facade if you will that has lifted bullish sentiment to crazy levels, but the underlying conditions for anyone who does a little digging, have been atrocious. Remember, just about every thing you see on a price chart alone is a deception or a trap waiting to be sprung.
If you need proof, just examine your own emotions lately, your emotions are almost always the best indicator, but in reverse, meaning if you are very scared, you are probably on the right track, if you are very hopeful, you are likely being set up for the fall.
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