I'm traveling today, but too much happened today to stay offline. I don't have portfolio statistics, but I'm sure it was horrible today. I think I was already stopped out on several before noon. Maybe I'll get lucky and the two shorts in the weekly portfolio will carry the day. One thing I'm certain of is that we're going down hard and fast from here, and I'll show you why.
I haven't figured out how to get multiple charts within a single post to work, sorry. The charts are in series after this post.
The first chart I want to show you is the VIX. Last Wednesday, the VIX was on a path to test a key support line. The August 28/November 4 support line held steady, and I think breaching that support was the last chance to get the S&P back into the 900's. As it stands, the VIX is winding its way through a symmetrical triangle, and it looks like it will blow out of the triangle within the next 3 to 7 trading sessions. The VIX and the S&P are inextricably intertwined - the only way to form a bottom is for volatility to settle down. Instead, it looks like we're about to break out the VIX to the upside, with 82 an easy target and probably getting to new all-time highs before we figure out what it all means.
Now look at the S&P futures chart, drawing the same trendline, connecting August 28th and November 4th. Notice the same test last week of that resistance line, and now it's old news that the resistance held. What it clarifies to me is that descending channel, and you have to go back more than 10 years to find any support below the 740-750 area. So, I think the VIX chart is providing us a better picture of what is about to happen in the S&P than the S&P chart itself, not because the conclusion isn't the same (it is), but rather because it is easier to see on the VIX chart.
As for action on ES for Tuesday, today's range was so huge that the pivot points are very wide. There are probably only 2 in play, 3 at the most. The pivot is 842. What has been really interesting over the last two weeks was to see how hard it was to finally break that 835-840 range to the downside, and then, heading back up from 750, we ripped through it like it wasn't there. And today, 840 didn't really put up a fight. So, maybe on Tuesday that 842 pivot provides resistance, but I don't think it has anything to do with the past volume in that range - it is washed out.
Frankly, I don't think we go up at all from here. Keep in mind that today we closed below 820 for only the 4th time in this downturn. The last time we closed below 820, we lost about 9% the next day and closed that day at 750. For Tuesday, 786 is Support 1 (S1), but 750 is a real possibility. If not Tuesday, then we look at the VIX chart for the clue and assume that we break the 740 low within 7 trading sessions. 680 is the next stop.
Joe
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