Charts I’m Watching: March 20, 2012

A quick summary of the major charts…

RUT has completed a Crab Pattern (in red) within the last leg of a Bat Pattern (purple) off the 2011 highs.  Significantly, it hasn’t been able to clear the TL off the May and July highs.  The May 2011 high was a double-top to 2007’s.

COMP is tagging a trend line off the 2007 highs which is exactly parallel to the line connecting the 2002 and 2009 lows.  A reversal here would make for four touches — i.e. a channel. 

While the largest potential Butterfly Pattern 1.272 completion is still some distance away (3295 v current 3071), it completed a small Crab within a small Butterfly at 3062 and 3048 respectively.  I think that between the TL and the smaller Butterfly, we should get at least an interim low in the short run — even though there’s more medium-term upside to the 3250-3300 level.

DJIA peaked at 13,289, completing a Crab Pattern a stone’s throw away from a Butterfly Pattern completion at 13,338.64.

Zooming out, we see that we’re also bumping up against the .886 of the Oct ’07 to Mar ’09 drop at 13,317.09.  Either of these patterns could be considered close enough to be complete, but a small intra-day bump to tag the actual target is very feasible.

SPX is closing in on the .886 of the Oct 07-Mar 09 drop at 1472.43.  But, we’re reaching important resistance levels in the rising wedge — which is getting long in the tooth.

On a smaller scale, the Butterfly pattern from last July is approaching its 1.272 extension at 1421 — assuming a Point X of 1347 on July 21.  This is the best fit for the Butterfly pattern, but it could be started at May 2’s 1370 or July 7’s 1356 — resulting in slightly higher 1.272 extensions.

There is ample bearish divergence in every time frame.

More later.


Charts I’m Watching: March 20, 2012 — 8 Comments

  1. Perhaps so, but I don't consider myself knowledgeable enough about how the futures will react to be able to say with any certainty.  The performance of each last month (Jan 18) doesn't seem to offer much help.  I do remember just before the plunge last July, when VIX options were dirt cheap relative to VIX itself because the futures were so cheap.  Bottom line, VIX is overpriced unless there's a big drop coming.  If it is, UVXY will prove to have been cheap.

  2. i follow you….does this stuff balance itself out eventually?

    and if it does balance itself out, wouldn't this be a great buying opportunity of UVXY regard considering the approaching expiration 

  3. I discovered them the same way.  Saw how trend lines off the 2007 highs kept influencing prices in 2011 and asked myself "what the heck?"   The fun part is seeing how lines parallel to them have ripple effects throughout time and price.  Of course, they're like any other trend line — they're not always an absolute barrier to price movement; sometimes just an impediment, complete with back tests, etc.

  4.  It's the VIX's version of a short squeeze.  VIX futures have been stuck in a contango for a while, meaning distant month futures are priced higher than front month.  ETF's like UVXY and TVIX track the futures, not spot, prices.  So, when the ETF's are rebalanced on VIX expiration day (tomorrow is the next) the high cost of having overpriced insurance on the market really hits home.  I say overpriced because actual volatility has been in the range of 8% ytd, while VIX itself is twice that.

  5. Hi PW,

    I had never looked at a fan line before coming to your site but they are really interesting things.
    Have a look at the attached image. It is almost scary how price is following those fib levels… turning on a dime. (And the folks on tv  imply that news drives stock movement).