LONGER TERM-

This is more or less the reason I decided in June as the market bottomed, to go with long positions in the equities model portfolio as hedges and probable profitable positions as well, rather than what I would normally due, which would be to close the core shorts set up at a very nice gain of 25+% (no leverage) in most and then look to re-establish those shorts on price strength.

The increasing volatility and unpredictability of the market caused me to say, "I'm not going to try to over trade and trade around this one, there's too much that could go wrong" and decided instead to hedge those core short positions meant for the primary trend. So far, even though I only made rough guesses at the size of the hedge I would ned, it has been profitable, even hedged.

So I decided it's time to take a loo again at the VIX long term as we haven't looked at it in some time.

 As has been the case for the last year or so (as this time period produced the largest number of these wedges), the wedges have not behaved as Technical Analysis books would teach you. In this case, the bullish descending wedge in the VIX by TA standards should reach its apex and then take off to the upside, that would see the market move down as there's an inverse correlation between the VIX and the market. Instead, these wedges form either a base such as this one did or a top in the case of a bearish ascending wedge, but in time, they tend to follow the implied path of the pattern, just not when TA says they should and as a result have caused many head fake moves, some we have used to our advantage.

 The VIX in green vs the SPX in white, showing the May 1 top and the June 4th bottom as these were the last two places longer term trades could have been made and still have them work. As you can see, the VIX is nearing a "W" type bottom with March 2012 being the first part of that bottom pattern.

 Here you can see the daily VIX and 3C showing a positive divergence at the March lows leading to a move up in the VIX ultimately that caused the Jun bottom in the SPX to form and since then, the VIX has been in an even stronger positive divergence, suggesting that the primary trend (longer term market classification) will likely move the VIX much higher and put the market in to a primary bear market trend. This is still a ways off from what I can tell unless we have a Black Swan event.

 As for short, sub-intermediate and Primary trend classifications, I'd expect the short term trend to be down, perhaps touching support of the flag pattern, maybe even breaking below it on a head fake move. From there, I'd expect a move toward he top of the flag, again, perhaps even above it in another upside head fake move and finally the primary trend to re-establish itself as a true bear market moves to new lows.

You've seen the short term 3C charts suggesting the short term trend is most likely a pullback.

Here are the other charts for the other trends...

 The Sb-intermediate trend on a 4 hour SPY chart is already higher than 3C was at the April-May top, a short term pullback should see this chart improve and thus the sub-intermeduate trend should be able to hit the top of the flag.


Ultimately the 2 day chart of the SPY representing the Primary trend, the market just never really recovered as there was no new QE introduced after the 2011 top formed and broke,  the rally we have seen since then, I have compared to a "House of cards".

In any case, this is what the probabilities are looking like as of now, the market is obviously fluid and dynamic so we aren't married to the analysis, if new information changes the outlook, then you'll be the first to know. I just thought this might be helpful in putting together some ideas as to different trends.