VXX / VIX Futures Quick Note

With weakness showing up already in our "Week Ahead" Early Strength/Monday forecast,  I'm sure many are wondering where this leaves us with a new VXX or add-to VXX position which I have been watching for-just count the 3 VIX updates from Friday alone.

The last update for VXX on Friday afternoon was, Quick VXX Update and here's an excerpt from the first paragraph:

"Remember the SPY 1 min chart (I'm talking about the 1 min SPY positive divergence suggesting a bounce from Friday afternoon), it's a mystery to me, it doesn't make sense, but this is how Wall St. operates, making the most number of people wrong at any one time just as it did when sentiment was at a bearish extreme early this week, what did Wall St. do? flipped the boat as we expected Monday.

As for the 1 min SPY positive, it has a slightly confirming VXX 1 min, this is why I have not put out the trade idea for VXX yet, despite so many other timeframes looking great."

I'm still watching VXX and VIX futures closely, the standard for a trade is not "market weakness", the standard for a trade is VXX / VIX futures charts themselves giving such a strong signal that it can't be ignored. Late last week I had several members ask what I thought about a VXX long entry, my response across the board was, "I'd wait". This again is based entirely on the charts as well as the reversal process I talked about around mid-week for VXX, which was way too tight for any upside move to hold (a sharp "V" shaped base).

The same standards that applied Friday for a new VXX long or add-to position apply today.

 VXX with a nice head fake set-up in place at "A" with a clear support zone and what looks like to be the head fake/stop run that we often see just before an upside reversal as a head fake move that is confirmed as such is one of the best price-based timing indications we have and occur roughly 80% of the time no matter which way the reversal, no matter what the asset, no matter what the timeframe.

 The 5 min chart that I've been watching for continued improvement and higher 3C leading highs, note the increased/leading positive divergence right around what would be the head fake area in the yellow boxes above this chart or below the yellow trend line above.

 The 10 min VXX chart with 3C price/trend confirmation at the green arrow and a positive divergence as the trend turns from down to lateral in a stage 1 base-like price pattern with a probable head fake to the right of the base area and a nice leading positive divergence. It would be nice to see this 10 or 15 min chart hit a new leading positive 3C high.

 As to the reversal process itself, the wider and more stable, the stronger it is, typically a "U" or "W" shape", this is what was too sharp last week to trust.

Intraday the VIX futures are also responding to market weakness. Last week VIX and Short term VIX futures both outperformed their normal correlation vs SPX, but a lot of that "could" have been attributed to what many were calling the "Lehman Weekend" for Greece this weekend. Now we are past the weekend and Greek banks opened today (although the ECB, which gave Greek banks a 3rd capital infusion from the ELA Emergency Lending Assistance Facility since Wednesday's first scheduled increase with Friday's and today's being unscheduled and "just enough to cover 1-day/today" according to the ECB), however with recent intraday market weakness building VIX protection is continuing to be sought out.

I'll put out an alert when it looks like a prime entry.