VIX and XIV

January 22, 2017 Jonathan Ravel

Regular readers know I pay a lot of attention to VIX and XIV. They frequently have the right read on the market and so I have learned to ignore them at my peril. I find technical indicators on these two vehicles to be a great confirmation of stock index positioning.

VIX has been low (ie closing under long & medium term pivots) since 11/8. VIX even dipped into the 10s which is quite rare. This helped confirm "long and strong" after the election regardless of one's political views or fundamental prognostications.

But even this doesn't capture what has been going on in XIV, an inverse ETF related to short term VIX futures. This is a good article on how it all works, but for now I just want to put up a few charts.

Bottom line - All timeframes on XIV are quite stretched. XIV has already reached 1HR1 and may tag YR1 soon. While this has been an incredible run, I'll be watching for any reaction from these levels: 1HR1 56.82 and especially YR1 59.86. If XIV stops going up, stocks are likely sideways at best and more likely down.

XIV M
The only bar that compares to the current bar was 6/2014, which was quickly followed by a -48% drop.

XIV W
This timeframe is also fully overbought, and has closed outside the Bollinger band for 7 of the last 9 weeks. This is an incredible run, but at the point where it should slow down at least and more likely drop.

XIV W - long term pivots
Already above 1HR1, the first asset class I know of to reach long term resistance already. YR1 within reach.

VIX

March 9, 2016 Jonathan Ravel

I really like the action on pivots with VIX and related vehicles. One glance at the first chart below and you'll see why.

VIX W with long term levels only; and yes, weekly closes on the YP this year, last year's low very near 2HS1 and high bang on YR3.

Here's the daily chart with medium term levels added. You can see VIX below the Q1P and thus below all pivots! It did come near the MarS1 but did not tag. Really VIX did not confirm any short setup yesterday, although did confirm a buy on 2/12 with a poke above the YP and clear rejection the next day.

There are others: VXN, VXD, RVX. Here skipping to an inverse ETF which can help confirm a trade setup with stock indexes too. This was quite right on the August breakdown, also correct in staying under its YP in Q4, showing weakness of the market; below all pivots to start 2016, low very near YS1 then up from there.

Lastly the VI futures which have high rollover. High of year bang on YR2, and recent drop under all pivots actually quite bullish for the market. Again not confirming a short setup yesterday, as it would need to lift above pivots.

Filters

February 2, 2016 Jonathan Ravel

Pivots work well a lot of the time, but even with a good method there can be some false signals. For example, yesterday SPY looked to be lifting from the FebP. As this was the first change of pivot status since 1/6, this appeared to be at least somewhat bullish - keeping in mind that SPY was still well below the more important longer term levels of the yearly and half-year pivot. That said, with nearly all stock indexes and ETFs rallying from yearly levels, one could have easily thought the bounce would go further. As it turns out, the market will open lower today and while SPY will still be within striking distance of the pivot, SPX and ES are clearly below.

If you looked at the SPY bar and reduced hedges or shorts based on first daily close above the pivot, then you'd have to be thinking about putting them back on today depending on the close. The main point of this post is to consider ways we can reduce false signals. This takes a bit of work, but those who like to understand the market and have fewer wrong moves will benefit. But if you don't have a lot of time, still I suggest #1 and #2.

1. All variants of asset
Check all variants of the asset you are trading. This involves just a bit more work, but I think the result is higher confidence setups when they are all clear. For example, I refer a lot to SPY here but the cash index SPX is really the base for the ETF; and there is quite a lot of trading on the ES futures contract. As most people know, these are all related and exactly what I mean by "all variants of the asset." So there is a similar point on QQQ / NDX / NQ; DIA / INDU / YM; the Russell and TF futures; and the list goes on in bonds and commodities. For example, showing the SPY / ES / SPX all below.

SPY looks more like lifting from pivot support. However, both the ES and SPX look like small blue bars (weak buying) which changes the picture. Weak buying from support is more vulnerable to a break just like weak selling above support increases the chance of a bounce. So if 2/3 of the variants are not clear, then maybe wait a day or adjust positioning in a similar fraction.

2. Volume
Check the volume bars on SPY and ES above. You can see that despite the first of the month which is often active, volume on both was low. In fact, both appear to the lowest volume up day of the year. Now judgement of volume can be more complex at times, meaning sometimes a volume spike is a turn and sometimes it takes divergence (ie higher highs in price with lower volume, or lower lows) but low volume buying is just not what you want to see on a bounce if you are playing for higher.

3. RSI
There are a lot of technical tools out there, but I had to add one it would probably be RSI. I know lots of people use MAs, and they can be somewhat useful, but once you start looking at different timeframes there are MA lines everywhere. Check this hourly chart of SPY and RSI on Friday and Monday was the highest it has been since 12/28. Not a great place to buy in a overall down trending market.

4. VIX and other safe havens
I like pivots on VIX quite a lot. On VIX, it indeed dropped from the FebP which does look bullish, but bang on to the more important Q1P. So a reason to perhaps wait one more day. XIV really nailed it this time, with resistance bang on the FebP. In other words, using VIX you had a sign of caution (ie don't buy stocks with VIX on larger support) and using XIV you would have correctly NOT changed positioning (either by adding longs playing for a bounce or reducing shorts / hedges). Additionally, sometimes TLT or other bond vehicles can help confirm stock positioning.

5. Watch correlated assets
Obviously there has been a lot of selling pressure due to oil and China this year. Yesterday, oil was down about 7% and below all pivots while stocks were fractionally up and most barely above FebPs. In fact, the broader market only stabilized when CLH6 held its YS1 on 1/20-21. China in the form of Shanghai Class A index (what is available on tradingview) and FXI both below all pivots. In other words, factors that have produced selling pressure were still clearly vulnerable as of Monday.

Big levels

January 23, 2016 Jonathan Ravel

The amount of indexes or ETFs that turned from long term levels - by this I mean yearly or half-year pivots - is rather amazing. These weeks are rare. The odds favor more on the bounce, but how far it gets we shall see - and use the shorter term pivots, especially the FebPs which will be in play in about a week - to gauge the strength. Of course all the levels below that broke and recovered by the weekly close will have to hold.

All charts weekly with year and half-year levels only (no quarterly or monthly). Listing comments first, then the charts. If you get confused to which is which, look for the light grey watermark of sorts identifying the index / ETF.

This post has gotten quite long, and I still didn't cover two categories - currencies and commodities namely, oil. I will do another post on that soon, but check the recent blog post on oil that pointed to the key level YS1 a day before the low!

USA mains stock indexes & ETFs
SPX / SPY / ES - all broke YS1s & 1HS1s, but recovered on close (hard to see 1HS1 on chart b/c so close to YS1)

NDX / QQQ / NQ - low on NDX near exact, QQQ disparate structure ie not on YS1, NQ more like ES

INDU / DIA - lows on YS1 & 1HS1 combo

RTY / IWM held YS2 / 1HS2 combo area. (Note: these two charts added on 1/27.)

NYA - recovered YS1, but still a fraction under 1HS1

USA additional stock indexes & ETFs
IBB - weaker bounce off YS1

SOXX - better move up from 1HS1. The Pivotal Perspective prefers SOXX over IBB here.

XLE - also YS1 low and recovery of 1HS1

XLF - I don't know what to make of pivots this year due to massive 8/24 spike, so not showing here

Safe havens & risk indicators
TYX - just slightly below its YP; recovery would put in back in congestion zone above YP but below 1HP; below YP remains bearish yield and bullish bonds.

TNX - rebounded from 1HS1

TLT - high on 1HR1 near exact

ZB - high on YR1 / 1HR1 combo, but could be pause and not rejection.

ZN - also high on YR1 / 1HR1 combo, but also perhaps pause and not rejection.

HYG - low on 1HS1

VIX - poked above, but did not close above, the YP for the last 2 weeks. decent reversal from the YP although some may point to closing below the low of last week as confirmation, which hasn't happened yet.