VIX overshot its .886 on Friday, losing .60 in the same way SPX gained 3 points — all in the last few minutes of the session.  Is this price action a signal of a continuing rally, or is it a futures related drop that signals the rally’s last gasp?

As of the close on Friday, VIX had gone just about as far as it could in the latest falling wedge.  Any lower and the pattern would be broken, and the falling wedge is as reliable a chart pattern as they come.  Just look at the rally at the bottom of the last wedge.

continued…

With the market off a little this morning, surely VIX would finally rally out of the wedge, right?  Wrong.  It gapped down on the opening, hitting 1407 before stabilizing just a little bit at present time.  Unlike the last time up to bat, the wedge failed big time.

VIX is that tiny little blip down there near the 1.272 of the current harmonic pattern — a Butterfly, actually.  So, what happened to the wedge?

To any Trekkies out there, the title was a dead giveaway.  It was assimilated into a collective (not quite a hive) of falling wedges which has formed a much larger pattern that’s also bursting at the seams.   Interestingly, this all happened with the market down a little this morning.

Does VIX know something that stock traders don’t?   The dollar dropped this morning, too, as though a big stock rally was on.

So, where’s the rally?

As I posted last night, NDX just hit a key level of resistance — a .786/.886 combo along with a few channel tags to boot.  And, it’s had the good graces to be off a little this morning — despite APPL’s gain of 5.

NYA is likewise bumping up against key resistance at its own .786/.886 combo.  It reached 8049.63 a few days ago, while the key fib levels just above at 8091.24 or 8098.93 — depending on your Point X choice.

RUT is in on the action — having reached a high last week of 806.41 vs its .786 of 808.59 (the smaller purple pattern below.)

UPDATE:  3:15 PM

This has been a very strange day.  VIX actually dropped even further this morning as the market was selling off — reaching 13.97 when SPX was down 6.30 on the day.  At 13.97, VIX can be considered to have tagged the 1.272 on the smallest Butterfly pattern  So, we can consider it due for a reversal.  It’s currently trading at 14.03, barely higher.

The only thing I can figure out is that there was very bullish sentiment coming into the session.  We closed at over 1400 Friday (strong into the close), and a lot of folks got all worked up about that.  The ISE call/put ratio (measuring new opening positions) was up to 184 this morning — meaning 1.84 new calls bought for every put.

Yours truly did not, as we’ve been lingering at a turning point for the better part of a week.  SPX (and DJIA) sports an exaggerated upside over the past week that just isn’t there in the other major indices.  It got to its .886 faster, and has been lurking — threatening to go higher.  Even though it’s closed higher every day since Aug 3, it hasn’t bested its high of 1407.14 on the 7th.

I continue to hold short since 1399, but am watching the 1411 area like a hawk.  If the market does take off again, there is a decent chance it makes it up to 1422 or 1433 very quickly.   But, the action of the past several days doesn’t make me feel the least bit bullish in the short run.

I have to run out for a few hours, but have a lot more charts to post this afternoon (DJIA, FTSE, COMP, RUT, NYA.)  Here’s a quick peek at the dollar, which is so far respecting the red channel line that’s kept it propped up since the middle of May.