VXX Update

I'm not going to say again how long I have been waiting for VXX to pullback and why, I think I've beaten that horse in to the ground, however I will say that VXX (Short Term VIX Futures) ARE doing what I expected them to do.

When we have a pullback it can be a decline in which case 3C will move with price and we call that confirmation of the trend or "In Line". Or we can have what we call a constructive pullback, this is where the asset is accumulated, these are the kinds of pullbacks I want to buy because smart money will rarely chase anything, I think the last time I saw them really chase was when AAPL crashed after Dan Loeb's Third Point Fund showed AAPL as a top 5 holding and the next filing it disappeared, we had been calling distribution in AAPL for some time and were mocked, told that it was going to $2000, a few months later and it lost nearly half its value, this was a panic and the hedge funds and others were all trying to fit out the same small door at once, the result was a 390 point decline or about -45%, but that's not the norm.

Point being, VXX needed to fall to be accumulated before this market was going to make a major downside pivot, them accumulating VXX (which necessitated a pullback to do that) is my timing indication for a major downside pivot as the IWM has already started the pivot from stage 3 to stage 4 off the last cycle that ran from the end of January to present, stage 1, 2 and 3, IWM was the first to enter stage 4 and has a volatility shakeout which is common early stage 4 (think about the H&S example and the 3 places I'll short an H&S with the VT shakeout being the last place, but never on the initial break of support of a stage 3 top, that's an easy way to get shaken out fast.

You've seen the daily updates of accumulation/positive divergences in VXX since it first broke Friday, each day it's getting stronger, I'll have a pretty good idea we are where we need to be by the reversal process in VXX as well as these flying , nearly vertical leading divergences that we only see in VIX Future derivatives. That doesn't mean that sector rotation (or the poor excuse we have for it now) won't make some assets better entries earlier than the VXX signal.

Here's what we have today with the first divegrence starting to get that vertical look and migrating through longer timeframes thus far.

Oh, and looking at the SPY, it makes sense...

 SPY 1 min leading negative intraday in scale, not a good start for this morning's pump/gap up.

 This is a 60 min chart of VXX, it's relative strength has kept it up and thus me waiting on a break for over 3 weeks now.

Here's the relative strength outperformance vs SPY in red, these two NORMALLY trade mirror opposite of each other.

SPY in red, VXX in green, that doesn't look like mirror opposite of each other does it? However the recent pullback seems to have stronger relative weakness for the last 3 days, overall not, but this is what we needed to see, I interpret that as meaning they are pushing it down as quickly as possible to the target area.

Remember VXX didn't break until the forward month and May options started seeing double digit daily losses the last 3 days or so, they are apparently trying to get this done quickly.

 This is VXX's positive divergence, it started positive on the first day down which is unusual, usually they get to the target area or close and then start accumulating, I think that's telling us something as well.

Look at today's leading action, much more vertical, that's the start of a flying divergence.

The divergence is also migrating to longer timeframes intraday, showing some strength building.

VXX 2 min and hitting 3 min as well.

Actual VIX Futures are seeing the same leading positive divegrence as you see above on the 1 min intraday and as far as the accrual of the divergence...

There it is, right on track on a 15 min chart of VIX Futures...

All in all, this is good, this is what I have been looking for as a timing indication of a pivot in the market from stage 3 top to stage 4 decline.