VXX / VIX Update

These are getting very tempting, but they can be very tricky to trade.

In any case, whether worth a trade or just good to understand for basic market analysis, I thought it's time to update them.

We have VIX futures, spot VIX which is what most are probably use to seeing and then we have assets like VXX which are short term VIX futures, this is a 2-month blend of the current and front month, for example while VIX futures (for June) reflect only June, there are other contracts like July, August, etc. VXX would be June and July so there is some difference between VXX (Short term VIX futures) and VIX futures as well as spot VIX.

 This is the CBOE's spot VIX, the one most people are use to. Low levels indicate complacency among traders, a lack of fear and these are most often associated with market tops while high levels reflect fear as traders buy puts to protect themselves and extremes on the high end are most often associated with bottoms.

What's interesting about VIX action is about a week ago or so there was a change in character in the 3C charts of VIX futures, shortly after that ( a day or two), VIX was no longer moving any lower, it was another failed lever for the market. Last week VIX closed green on the week (as you can see support) and had the best week in 5 weeks. The numerous small bodied candles at a support level (Stars, Dojis, etc.) are a sign of a loss of downside momentum and essentially an opening to an upside reversal, the market moves opposite VIX. 

I believe the charts show VIX holding up out of real demand, pros are buying protection and a real supply/demand dynamic is keeping VIX up and in the green when it should be down many days.

This is my Custom DeMark (inspired) Buy/Sell Indicator, it is giving a VIX buy signal right now. I'LL BE RUNNING SCANS OF THE WATCHLISTS WITH THIS SAME INDICATOR IN A FEW MINUTES, unfortunately I can only scan 200 stocks in real time at a time and it's a bit slow, but I think it may bring up some interesting candidates for trades.

 This 5-day chart of VIX shows support broken, but the downside momentum has fallen off as the last 5-day candle is a very narrow bodied Star, a common upside reversal candle (in this position).

As for VXX and UVXY (2x leveraged VXX)...

 Numerous charts are looking very interesting. Last week while there was distribution in the market from Institutional investors and retail was buying, we see a positive divegrence at the EXACT same spot in VXX.

The 3 min chart shows a larger positive divegrence which starts right at the time of the bear flag set up in Mid-May. Plus the leading nature of this chart is right along the lines of the "Flying leading divergences" that we tend to only see in VIX-based assets. The transition from short term confirmation (left) to this leading positive gives this chart a lot of credibility.

 UVXY 15 min, which is interesting as there seems to have already been a trend of positive divergences before VXX was hammered lower, but the chart never confirmed and stayed leading positive.

 The same is true of the 30 min chart, which makes me thing of the SPY and QQQ 30 min which look almost exactly the opposite as the assets trade opposite, it looks like excellent confirmation of the overall situation, distribution in the averages on a massive scale and protection bid on a massive scale.

Finally the same type of trend on an hourly chart, leading positive, no downside confirmation. Even though the past divergences are not relevant because of the rolling contracts (2 months), the trend of how smart money has been responding is worth noting.