Monday, December 17, 2012

Volatility as Confirmation

Before the F_O_M_C announced their Treasury buying, there were no signals any where suggesting which way the market was going to head, how it would initially take it; then as I went to the volatility ETFs like XIV, VXX and UVXY, I saw them move big time right before my eyes, I posted that they were showing the initial reaction to be favorable which it was and then they reversed suggesting a move down intraday which happened and a 3rd post about the continuation which happened so I've learned a little about how and when to use these.

Here's XIV alone, the findings here are nearly identical to the QQQ findings, although they do have some differences as they should because a move down in the Q's is not the same as a change in volatility, the amplitude of the change in volatility can be much different than just a price move up or down, but for now we have pretty good confirmation.

 XIV moves with the market for the most part, that is it's correlation whereas VXX and UVXY tend to move opposite the market like the VIX so positive divergences in XIV should be taken as similar to positives in the SPY or another market average.

On the intraday 1 min we have a positive divergence that fits with the DIA one I mentioned, it has moved to leading positive position which is stronger...

 That divergence has migrated to the 2 min chart so it looks good.

 The 5 min chart already had a significant divergence in place so most of the new move in on the intraday charts, but like the Q's 5 min being positive, so is XIV.

 And the Q's 10 min is positive, so is XIV in a leading positive divergence

Looking at the 60 min you can see the overall longer term tone is much different out here, there's a leading negative divergence of some size, so this again fits with the QQ/Market trend expectations. Think of the white trendline as being similar to the QQQ's obvious resistance area where a lot of orders will be triggered and almost certainly create a bull-trap, kind of like a short squeeze for a move down.

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