Friday’s sharp move lower for US equities was duly reflected in the VIX which closed the week with a wide spread up candle, moving from the intraday low of 12.52, to end the session at 17.50 as panic selling ensued, and fear took hold ahead of the FOMC. Prior to this move, the daily chart for the VIX merely reflected the congestion phase for the primary US indices with the YM, ES and NQ all failing to break higher following a desultory summer of price action. For the VIX itself, the platform of support in the 11.20 has duly held firm having been tested in late July and several times in August. Friday’s candle has duly taken out potential resistance in the 13, 14 and 16.90 areas respectively, and with equities continuing to move lower in early trading the VIX is likely to climb higher and test congestion in the 19 to 20 area in due course.
As always, the big short doom mongers will be out in force following Friday’s reaction, but given the associated volumes, and lack of a selling climax on the indices this seems unlikely. Far more realistic is the market firing a warning shot across the bows of the FED to consider the damage a rise in interest rate would do at this state, as well as laying down a marker ahead of the US presidential election.
By Anna Coulling
Charts by NinjaTrader and indicators from Quantum Trading