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Saturday, January 12, 2013

$VIX - Cycles Suggest High Volatility in 2013


IF the Deja Vu Cycle CONTINUES to unfold, then the VIX faces potential for an extreme volatility move in 2013. 
 
In the past, a move for VIX over the red trendline has resulted in a crisis.  The red trendline was tested for VIX during the recent Fiscal Cliff turmoil in late December.  Importantly, the VIX did not spike up during the October/November decline for SPX, but did spike on a smaller decline for SPX during the Fiscal Cliff event in December. 
 
The VIX spiking on a smaller SPX move may be a warning of danger ahead.  

The Deja Vu Cycle suggests the potential for a 460 point measured decline in SPX.  As well, the potential exists for a large VIX move during the current economic environment.  Several examples of issues:

1.  Panic could result if people lose faith in the ability of the Fed to provide support to the market.  VIX could rise dramatically in a declining market environment.  The thought may be that if the Fed could not prevent the market from declining, then, is it even possible to stop a decline?

2.   Panic could result if people lose faith in the ability of the Government to deal with the current debt crisis.  The US is only 5 weeks from default by some estimates.  If a solution is found in time to avert a default, concerns about high debt levels may persist anyway. 

3.  Recession in the US may be already underway since July 2012 according to ECRI.  The market may not be pricing in the possibility of Recession at current levels.

Fear is a strange animal, and can snowball to irrational levels.  VIX made a rare move during the first week of January 2013 that has not been seen since 1987.  That is clear evidence of unusual market conditions, and therefore, violent movement is possible.   

3Day Chart







 
 
 
 
 
 
 
 
 
The Deja Vu Cycle for SPY with Measured Downside Target:
 
3Day Chart
 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
The Deja Vu Cycle from 2011:
 
Daily Chart
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The 5-year Cycle suggests SPX has been struggling at resistance.  The 5-year Cycle indicates the potential for a larger than usual move ahead. 
 
Support is shown much lower.
 
7Day Chart
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Below are some examples of Large Cap stocks that are not participating in the recent market rally. 
 
Small Caps did rally, and can be a sign of a mature market.  Financials did rally also, but have underperformed for several years, and are just slightly, finally, over 2010 levels. 
 
Daily Chart

 

85 comments:

  1. These Cycles are large scale in terms of size.

    Therefore, these Cycles will not predict an exact price for a top in SPX, or a bottom in VIX.

    20 or 30 points of movement in SPX is barely distinguishable at this large scale.

    ReplyDelete
  2. SC, can you give us some more information about that rare VIX move in 1987 that was simmilar to first week of January 2013? When did it happen, for example? (I don't have VXO data that far back.)

    Following you closely on this. Thanks.

    ReplyDelete
    Replies
    1. VIX made a rare move that has not been seen since 26 years ago in 1987:

      "The VIX plunged 39% this week, marking it's worst percent drop in at least 26 years."


      http://www.cnbc.com/id/100355693

      Delete
    2. Thanks for the source. It's a shame we don't have more precise data. I would sure like to know when in 1987 that happened. Early 1987? Early Aug. 1987? Early Oct. 1987? The best I can come up with are google search historical chart results. I imagine that the charts are not doctored . . .

      http://m1.smartmoney.com/aheadofthecurve/images/20021018vix.gif

      http://www.marketoracle.co.uk/images/low_vix.gif

      Delete
    3. Thanks for the chart - quite a move in 1987...

      Here, this article has the exact timing:

      http://www.cnbc.com/id/100352607

      Delete
  3. "The U.S. reached the statutory borrowing limit on Dec. 31, and the Treasury Department is using what it terms “extraordinary” measures to finance the government. The Congressional Budget Office estimates those steps will be exhausted by mid-February.

    Obama must act on his own to prevent default “in the event that Republicans make good on their threat by failing to act, or by moving unilaterally to pass a debt-limit extension only as part of unbalanced or unreasonable legislation,” wrote Reid of Nevada and Senators Richard Durbin of Illinois, Charles Schumer of New York and Patty Murray of Washington.

    White House spokesman Jay Carney told reporters on Jan. 9 that the administration was “not going to negotiate” on the debt limit. He said Obama won’t send aides or Vice President Joe Biden to Capitol Hill to negotiate with Republicans over their demand for at least a dollar in spending cuts for every dollar that the debt ceiling is raised."


    http://www.bloomberg.com/news/2013-01-11/senate-democrats-urge-obama-to-act-on-debt-if-needed.html

    ReplyDelete
  4. Hi SC

    Saw you posted up your trade page, awesome work.

    Thanks for the post and this one for VIX, am wondering if you actually have a target for VIX near term?


    Thanks!

    ReplyDelete
    Replies
    1. Yes, posted the trades section, and will document the trades in real-time during an interesting year!

      Delete
    2. SC, thanks for creating the trades section. Hopefully you post your trades in real time.

      Delete
  5. Yes, I have an update coming for this next week, and plan for the following weeks with levels and targets.

    ReplyDelete
  6. I've reviewed in detail, and the summary is that SPX should stall around this level, and churn sideways to mildly down for days, then "out of the blue" drop to 1440 area within a week or so.

    ReplyDelete
  7. Hi SC, what do you use for your forecasts, just price or do you use planetary positions and time

    ReplyDelete
    Replies
    1. I incorporate price and time cycles, geometry, and symmetrical patterns mostly. Sometimes I have time cycles that can be accurate, and in other situations I have a stronger opinion on price itself.

      My background is in the Sciences originally, as well as traditional Finance and Economics. I realized after working with traditional analysts that there was much to be desired with respect to forecasting. This led to working more with Cycles.

      There is an Art and a Science to developing forecasts. Some of the cycles that I have developed involve a fair amount of astro, but it is not my primary method of focus. As well, I incorporate facets of human behaviour into my work.

      Delete
  8. EMINI

    http://traderjoed.blogspot.com/

    ReplyDelete
    Replies
    1. Hi Joed

      Thanks for the update, wondering are you seeing us going down like SC is forecasting?


      Thanks!

      Delete
  9. Today is the high on my correlation chart. Good place to short likely. Holding TZA at $12.10.

    ReplyDelete
    Replies
    1. Hi SC

      Are you planning to add more UVXY and short SPX? or you done adding?


      Thanks!

      Delete
    2. No, I'm done. Already positioned.

      Delete
  10. SC,
    No plans to show us trades for 2011-2012 period?

    ReplyDelete
    Replies
    1. or at least overall performance?

      Delete
    2. I did not show many trades for 2011 on the site. The trades for 2012 were documented in real time.

      Going forward, I plan to post trades in real time in the comments, and also in the "Trades" section for easy review. I plan to take it one step further and also calculate cumulative returns.

      Delete
    3. Hi SC

      I dont see a stop on your UVXY trade, you plan to hold it no matter what?

      curious to know if you have a mental stop for UVXY then, like a level where you may consider exiting in case shit hit the fan?


      Thanks!

      Delete
    4. My stops would be based on price, time, and other cycles and factors. I would exit if need be, but am currently positioned as the Deja Vu Cycle continues to play out.

      I plan to exit when the red trendline in the Deja Vu Cycle is tested.

      Delete
  11. SC,

    Do you see huge megaphone pattern from late 90s on the SnP500, targeting 1600-1650?

    Do you have a hard stop for your plan, which if hit would mean that your plan is not working?

    >1500 on the SnP will do?

    ReplyDelete
    Replies
    1. Yes, I see that pattern.

      The market would have to prove it to me that it can escape the "Cycle" for me to exit the trade. At this point the evidence is overwhelmingly in support of the Cycle continuing.

      Delete
    2. What would the market have to do to prove that?

      Delete
    3. It is a large scale Cycle, and so sufficient time and price must be given. I think people can compare the current market to the Cycle and make their own judgements.

      I think there are reasonable limitations in time, price and other factors.

      Delete
  12. SC I am short with you but I am a little nervous here. I feel like the market may be consolidating before the next leg up.

    ReplyDelete
    Replies
    1. The main point is that my model shows this as simply being an expensive market. Expensive can become more expensive, and it can take time. Nevertheless, I think the evidence is there. I will have patience as it seems like it could be a grind.

      Delete
  13. well done SC, love the blog
    i got in when vix were $15, and still holding

    spy double top
    nasdaq 50 MA were below 200, now has just gone back above that

    leg up? i dont think the market got that extra fuel for it

    SC, look at $VIX chart, 50,100,150,200 MA are all getting narrower, it happened in the past before when a major crisis were about to hit the market hard, i believe this time, that chart is also telling us something

    ReplyDelete
    Replies
    1. Thank you!

      "leg up? i dont think the market got that extra fuel for it"

      I agree. When stocks like Apple, GE, and IBM are in the doghouse near November lows, it is quite telling that the market is weak underneath.

      I'm not calling a top just yet, but I think upside is limited and momentum is deteriorating.

      Let me check out those moving averages on the VIX.

      Delete
  14. The weekend forecast still looks good to me.

    SCJanuary 13, 2013 at 10:31 AM

    "I've reviewed in detail, and the summary is that SPX should stall around this level, and churn sideways to mildly down for days, then "out of the blue" drop to 1440 area within a week or so."

    ReplyDelete
  15. Jan 14th High......March 4/5 Low. Staying short until approximately then via TZA.

    ReplyDelete
    Replies
    1. Hi SS

      you not playing with the bounce and just plan to hold till March? think there maybe bounce on the way there...


      Thanks!

      Delete
    2. Only bounce I see is Feb 20th, and its not a big one. Depending on other technical indicators I will probably try to trade this a bit, but I almost never do well when trying that approach.

      Delete
  16. HI SS76
    agree with downtrend now thru Late Feb or early March.
    SELL the rallies is now the call till then.

    Jan11th Full moon and 14th = an 8day & 13 day turn.
    broke under 1466 and made a 78.6% retrace to 1470.66.

    Tomorrow can be a very stressful day and the markets should show it also;
    Lows this week on 16th & 18th can lead to a strong rally Next Tuesday. 21st is closed for MLK day.

    Jay
    ps
    THE DISCOURSE here has been EXCELLENT without the badgering from certain participants- NO NAMES in particular, but we all know who they are.


    ReplyDelete
  17. Anyone visit Joed website lately?

    something is strange there, he posted a emini chart with what looks like a red arrows pointing down assuming he is looking for it to go downward. But then his newest post looks like he bought TNA today.


    interesting

    ReplyDelete
    Replies
    1. I can explain that one.

      He has an auto-trading system that issued a buy on TNA at today's low.

      His cycle expectations for a market top come from a completely different system. He keeps the two types of trades separate.

      The two aren't necessarily incompatible anyway, as the TNA trade can be a short-term dip buy and he might exit it at any time.

      Delete
  18. SPX looks like its ready to test 1472

    close above 1466 will confirm that

    ReplyDelete
  19. Hello every one, just got back from a holiday. I am now scaling out of longs here. Almost ready to go short here in SPXU TZA I was still looking for slightly higher high (1475 level)

    Good Luck every one !

    ReplyDelete
  20. SC .. no stop on UVXY ?? your down 8%

    ReplyDelete
    Replies
    1. ya, SC, you really have to consider how you play with UVXY......what size are these positions that you are playing with?

      I still think you will be fine but to make a mistake with that one is not forgiving.....I will only ever short via TZA at select times like now, and SPXU......if the VIX was to ever spike violently, I would buy XIV and sit back and relax. I think this is the best way to go for me anyways.

      Delete
    2. SS
      curious why you so conservative? you getting old? just curious.

      Thanks!

      Delete
  21. Hi SC. Just wanted to share with you that I have decided to start my own blog using the correlation method combined with some of the TA indicators I like to use.

    http://timethetrade.blogspot.ca/

    Hopefully you and others find my stuff to be value added...

    ReplyDelete
    Replies
    1. seems like everybody and their mother is using ZZ's 1966 correlation, more reasons for it to fall apart sooner than later. lol

      Delete
    2. Very good SS, thank you.

      Delete
    3. Your welcome. ZZ never hid what correlation chart he uses but that is only one part of his analysis and there is probably good reason to subscribe to his site. I don't simply rely on the chart and as such will execute when all my other indicators line up. I also have 3 other correlation charts I use to help me decide on what is most likely. I'll certainly be judged on my performance.

      Delete
    4. Hey, i am not criticizing. It was freely shared a year ago so others could see it. I just thought it was funny to see the same chart show up on 4 blogs, thats all. We all know what happens when everybody is starting to think the same thing. May be the case here, may be not. Its all about probabilities. Good luck to all!

      Delete
    5. p.s. i am not subscribed to any blogs. learn to make your own mistakes!

      Delete
  22. still holding UVXY and at what price do you extit and re-evaluate

    ReplyDelete
    Replies
    1. Mick, uvxy should be very close to a big move, but its so risky and unforgiving not to have a stop.

      Delete
  23. Down 11% on UVXY is your stop 20% ?

    ReplyDelete
  24. The market is quiet currently, that could continue, and VIX could come down lower as a result. My large scale cycle will not pick expect tops or bottoms as I have always emphasized.

    ReplyDelete
  25. sc
    im down 33%

    its a pain in the ass to see vix etf going down when the market holds its ground

    i dont know ho much more it will be down, but i got the feeling all my loss will turn positive after few weeks

    ReplyDelete
  26. Mick, i purchase 50% UVXY then purchase 50% XIV as a hedge. That way still making $$ while waiting for UVXY to bottom. Then I wait for an UP day in UVXY and purchase near the close of the SECOND UP day (as you will see UVXY will like to fake people out with strong reverse and continue lower the following day as happen last week.) Then sell XIV. I never sell xiv at loss...just hold eventually GREEN.

    UVXY i sell at every time VIX moves over 18-19. Swap into XIV.

    ReplyDelete
  27. Bought UVXY at 17. It's now languidly at low 13. Wondering if I should double up. Any advice ?

    ReplyDelete
    Replies
    1. Colours, I suspect you are a Canadian. That is a dynamite question ! If one does not learn the lesson from the past, they are doomed to repeat the old. The people who brought these to the market place, should be in jail. This is a license to steal from the unsophisticated investors. I would highly suggest you stick to the 3 x inverse etfs going forward.

      I personally am looking for a downward market into Feb 25th myself. With a possible correction of 9-11% correction. NO CRASH ! We may see a pop up in the markets tomorrow with the sp to the 1483 level. I hope I will be wrong. I was scaling in shorts at the 1472.5 level today. If you are going to go short, buy some spxu. Diversify your short position. Good luck

      Delete
    2. I couldn't agree more with the above post....

      Bottom line is don't buy UVXY unless you intend to sell them within 2 days. The decay is too much & 99% of people lose money on them.

      Just short futures or buy bear ETF for those who are bearish!

      Delete
    3. We are just different personalities of SC, LO LOL

      Delete
  28. Where do all these new users keep springing from? Feeder club?

    ReplyDelete
  29. I'm an amateur who unfortunately got sucked it. My question is how much of the drop is due to time decay of the UVXY ?

    ReplyDelete
    Replies
    1. None. UVXY doesn't suffer from time decay. It doesn't behave like an option in this manner (options do suffer time decay).

      It is not the passage of time, but rather repeated up-and-down movements in the underlying VIX short-term futures index, that cause UVXY to decay. Its behavior is the same as all levered ETFs in this respect.

      Here's an example that shows how the decay works.

      Imagine you buy UVXY when the VIX futures index is at 20 and UVXY is also at 20. (I am just picking these numbers to illustrate the principle; they don't have any special significance).

      Now VIX futures drop 10% to 18. But UVXY is 2x levered so it drops 20% to 16.

      The next day VIX futures rise back to 20, a gain of 11.1%. UVXY rises twice that, 22.2%, to 19.55.

      Now VIX futures are unchanged at 20, but UVXY has lost 0.45 to 19.55. That is where your decay comes from.

      Chop back and forth like that multiple times over a few weeks, and you can see how UVXY can lose a lot of value even if VIX futures hold steady.

      Delete
  30. SC down 12% and counting since he bought UVXY...

    Please don't magically come out and say you sold your shares 2 days ago and you are not down as much.

    Market is on a tear

    ReplyDelete
  31. No magic. I'm holding my positions. Clearly, my model shows volatility to return soon enough.

    According to the model this would be the first ever opportunity to experience a bear market with a volatility etf. That is because these etfs did not exist in 2007 (the last time we saw a bear market).

    ReplyDelete
    Replies
    1. Hi SC

      Do you believe we may have topped out for 2013 in January?


      Thanks!

      Delete
    2. I've been saying since Sept/Oct that SPX would probably trade just over the Sept high. The market is seriously struggling overall though. Since March, and Sept highs SPX has gained little, and more importantly lost momentum.

      My model suggests that SPX is trading near a top. Next week can see a drop to 1440's imo.

      Delete
    3. Next week or next next week or next next next week ?
      I mean, patience is key and it is a long term trade.
      My opinion is that investors should wait until early february to see extreme volatility.
      I repeat, patience is key, and SC,I would like to tell you that I'm one of your biggest fan and I'm impressed by your stoic behavior.
      Cheers

      Delete
    4. Thank you. Market may be slow for a couple days still, and then next week some volatility can return with a decent dip for SPX.

      I agree, Feb is likely to see more serious volatility.

      Delete
    5. XIV appears to be putting in a top here, the market should follow soon.

      Delete
  32. Ok I'm going against my better judgement & bought 2,000 of the decaying UVXY at 12.84 today.

    Its only a scrap but couldn't resist if after reading all of your posts....:)

    ReplyDelete
  33. SC,

    Money management question:

    How much (% wise) of your portfolio you are normally committing per 1 full position? Do you have any set rules

    For instance, The UVXY trade and SnP short trade - how much % wise they are from your total portfolio value?

    thanks.







    ReplyDelete
    Replies
    1. Most of my portfolio is short S&P, and in UVXY. I could add to positions if I chose to do so. It is a personal question though because obviously others have totally different personal parameters. People need to go over their own financial situation and decide what strategy is appropriate for them or not.

      Cash is also an asset strategy as many forget.

      Delete
    2. My portfolio is just part of my total assets including real estate etc...

      Delete
    3. lol SC

      public stock chart posting has became a personal Q and A

      vix will turn, just hold on for few days, 10% loss on your position is nowhere close to my 35% loss, will add more on the way, need to wait for MACD turn its direction to confirm the trend

      GL

      Delete
    4. thanks SC. I appreciate honest answer. So you are all in on this one. Yes, i was asking about trading account.

      ZQ,

      You have not been here long enough it seems. Go back a year ago on this blog and read comments, few folks here lost 50-75% shorting the bull using UVXY.

      Delete
  34. Can u have the latest comments on tje yop

    ReplyDelete
  35. Chart with SC's calls for SnP500 2011-2013 updated:

    http://i1266.photobucket.com/albums/jj536/charts101/scsSPXpDyr2mn0dy0ip32370625066a2808_zpsd2ed928b.png

    ReplyDelete
  36. WOW...thanks AM! Didn't realise it was that bad....just goes to show that guessing instead of letting the mkt tell you where it is going clearly doesn't work!

    ReplyDelete
  37. S&P and Dow are flat. Yet UVXY dropped more than 2%. Befuddles me.

    ReplyDelete
  38. Market is slow so that keeps pressure on it. Yet, expect volatility to return.

    ReplyDelete