Friday, June 5, 2015

VIX and Bollinger Bands Suggest Stocks May Be Forming a Tradeable Bottom Here

Click on Chart to Enlarge

I have shown this chart set-up several times in recent months, highlighting times when the short-term standard deviation of the VIX is  excessive relative the the longer term.  In this case we have the VIX outside its longer term deviation bands and its upper Bollinger band has risen above the upper longer term band as well which implies that the short term volatility movements are extreme relative to the trend.  This set-up has given many timely signals of impending reversal higher in stocks.  I don't have great reason to believe it won't happen again here.

There is also a hourly MACD bullish divergence on SPY at this morning's lows, suggesting that stocks may be set to move higher next week (and possibly beyond).

So I simply look for this set up relative to support/resistance and moving trend.  This alerts me that a bullish reversal day (new low in a trend with a close at least above mid point of the range) may be a legitimate buy point with a stop just below the reversal day.  Depending on how the market ends up today, this set-up may be in effect.


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