VIX / VXX

First, here's my custom indicator inspired by DeMark principles, it gives simple buy or sell (short /  cover) signals and they are fairly rare. This chart was featured Wednesday in the Daily Wrap as the Financial media were making it sound like the VIX was off on a tear and wasn't coming down for a long while.

 This is the exact chart from the Daily Wrap October 9th linked above. We had a buy signal in July that led to a move higher and a clear sell signal this week that led to a large move lower the next day, which we did well with as we had an open VXX Put from the day before which we closed the next day (Thursday) for a +40% gain for only 4 hours of market exposure.

 Here's what the same chart looks like as of today.

This is a 5 min chart of the VIX Futures, it's not intraday, but it's great for very short term signals like the VXX call opened yesterday.

You can clearly see the negative divegrence that was part of the reason the VXX put was opened and now we have a relative positive and a leading positive (the stronger of the two types of divergences) divergence which is growing stronger.

The VXX (Short term VXX futures) is also in an intraday (2 min), positive divegrence.

The 5 min VXX is in a relative positive divegrence, this is a longer and stronger timeframe so the divergence isn't as impressive here yet. If the shorter term 1, 2 and 3 min charts continue to improve, there will be positive migration to the 5 min chart and that's where our probabilities increase dramatically and ideally where I'd like to add to the VXX Call position.

 Part of accumulating or distributing for smart money is doing it in a way in whivh your very large orders don't send the market's price moving against your position. As I mentioned yesterday, I was listening to an interview of a Wall St. fund that was trying to fill their own order rather than use a market maker or specialist who are skilled in filling large orders. This firm (they didn't say which asset they were trying to enter) said they had moved price against them by $5 in the first day alone, I know that's a relative number since we don't know if it was a $52 JPM or a $1000+ PCLN, but they were not happy.

The point being, to accumulate in large size, they need to create supply and the easy way to do that is to hit stops.

Note the first major stop run was the gap down- FEAR produces movement. The second and most obvious came from the breakout from the triangle which saw some upside volume meaning longs bought the breakout, STOPS WERE PLACED RIGHT BELOW THE APEX OF THE TRIANGLE FOR LONGS WHO CHASED AND BOUGHT THE BREAKOUT MOVE. Some more volume was created as support at $14.31 was broken.

The 2 min chart of VXX is already leading positive, but I'd like to see a new leading positive high, see where I drew it in on 3C (orange).

I'll be watching for this and the tone of trade as well as the market in general as the VIX trades opposite the market.