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posted on 11 November 2016

Which One Is Lying?

from the Pebblewriter, Pebblewriter.com


No, I’m not talking about politicians. I’m talking about trend lines: the most basic of all chart patterns. Let me explain (see below).

Everyone knows that VIX spikes when markets plunge, and plummets when they rally. In point of fact, it used to work that way. Increasingly, over the past few years, VIX spikes when markets plunge and plummets when central planners wish to support or drive stocks higher [if you have a hard time believing it’s a tool, just watch how it danced around its SMA200 (15.6) Friday.]

It’s one of the subtleties lost on most investors who don’t fully appreciate the degree to which central bankers and their functionaries intervene in markets nearly every day. And, it’s one of the reasons S&P futures were able to execute a 152-pt turnaround Tuesday night.

Click for larger image. 2016-11-11-vix-v-spx-clean

Setting that aside for now, there’s a glaring discrepancy in the VIX charts at the moment. The huge yellow channel dating back to 2010 has done a pretty good job of forecasting VIX’s lows, but a less than stellar job with its highs.

The falling white channel, on the other hand, has done an excellent job with both highs and lows for the past year or so. And, last, the rising red channel has worked well since its August lows, the tail end of its effort to save the world from Brexit.

If we look at a closeup, however, we see a red trend line off the August lows that has done a very good job of providing support ever since. We can construct a channel from it if we like, as seen below.

Click for larger image.2016-11-11-vix-v-spx-cu

It clearly corroborates SPX’s decline since mid-August. But, it’s in stark conflict with SPX’s breakout past the falling purple TL. One of these TLs is correct; and, one of them is a liar. The answer to which is which will determine whether the latest rally will last, or go down in flames.

By the way, we remain short from 2177.60 yesterday afternoon. Our downside targets remain unchanged.


Note: This is the beginning of a longer article for subscribers at Pebblewriter.com. Sign up here.


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