The question that every trader and investor is asking at present, and continues to ask on a daily basis, is whether this is the start of the big short, or merely a long awaited market correction in equities, and the answer as always is partly answered by the VIX, the barometer of fear. The recent sharp move lower in early August for equities, which many investors and analysts suggested was the start of a major reversal, only saw the VIX hit a daily high of 17.60, a number which is hardly suggestive of panic selling. Had this been a true selling climax for equity markets then the VIX would and should have risen dramatically, and not simply reflected the reversal in a modest move higher. Since then, the index has moved sideways in a short term congestion phase, with the long legged candle of the 1st August confirming this indecision with a pivot high as the index struggled to move higher, finally breaking back below the key level in the 16.50 region. This week’s price action has once again confirmed the bullish momentum in equities, with the VIX moving firmly lower, with yesterday’s move breaking through the deep support platform in the 13.75 area, which now becomes resistance. The next potential platform of support now awaits in the 12.10 area and if this is breached as expected, then the index will once again begin to test the 10.50 region, which to date has held firm.
Moving to the indices themselves, and the September futures, the Nasdaq Emini NQ is once again leading the way higher for equity markets, with the reversal here less pronounced than on the Dow Jones Emini YM. The reversal higher was signalled with the pivot low of Friday last week with the index recovering to move confidently towards the 3975 area once again, and if this is breached, then expect to see a test of the psychological 4000 level in due course. Volumes for the daily contract remain light, partly reflecting the trading season, with yesterday’s trading volume just breaking the 200K. However, yesterday’s price action was also signficant moving beyond the deep area of price congestion as shown with the volume at price histogram to the left of the chart, with this region extending from the 3870 to 3920 area. With the index now trading at 3952 on Globex ahead of the US open, the outlook remains bullish, with this and other equity markets recovering their poise and bullish momentum once again. There is nothing to suggest, either in terms of volume price analysis, or indeed of other markets that we are at the big short just yet. In addition, mid cap and small cap stocks continue to perform well, supporting the blue chip markets, so the big short will have to wait for another day, and as always one of the charts to watch is the VIX where fear is never far away.
By Anna Coulling