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Thursday, December 6, 2012


In my prior post on the VIX I wrote:

This is the sixth time since the 2009 low that the weekly 6 SMA has crossed above the 18 SMA marked by the yellow arrows.  The yellow line marks the lowest VIX reading that marked a VIX peak.  That was in the spring correction at 27.73.   Unless it is different this time, we should see a VIX reading at least 27 before we make the next low.   If you look at the chart closely you will notice that every other cross led to a VIX reading above 40 before the low was made.  We are in that situation now.  In 2011, there was a rally that took the VIX back below the 18 SMA, but the market still tanked 20% from the high.  In this situation, I think we need to see the VIX below the 18 SMA long enough to clearly turn the 6 SMA back down or a reading of 27 before considering a low may be in.  Just keep in the back of your mind we may need to see the VIX above 40 again.  Yesterday's potential break away gap to the down side makes that a real possibility.  In the mean time, longs should be viewed as swing trades with a quick exit trigger.  Repeat after me, sell rallies, sell rallies, sell rallies.

Lets look at the chart again.

VIX took a dip back below the 18 SMA on this rally, but has now climbed back above it.  Where it closes this week could be important.  If it closes back above that 6 SMA we could be starting another VIX spike and a sell off in the market.  If it does spike up, will it get to the 27 area this time?  Every other time it went to over 40 and this is the other time.  Will history repeat?  That would be a Dec. to remember.  I think this situation needs close attention if you are long. 


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