VIX Spike – US Indices & Flash-Crash
The Market is reacting to fundamental events and multiple question marks seem to be appearing, as the trade war sentiment escalates. Moreover, it seems that earnings reports could surprise after all, with some global leaders in the tech field struggling to keep up with the expectations.
Risk-off period seems to show persistence, as the YEN is showing possible signs of strength.
With the USD being the strongest currency of them all, July was a month full of uncertainty and fear when it comes to precious metals. EUR & GBP also got hit hard by the bearish wave caused by the stronger greenback.
At these current stages, the Market seems to be inclining towards a possible correction, or even a “flash event”.
Due to the unclear paths and the wild swings, market participants and traders seem to be leaning more towards stocks and indices at these times.
With volatility showing considerable signs of a come-back, the US Indices are possibly entering dangerous grounds and bearish territory.
A sharp rise in volatility represents the reaction of sellers who take over, once the greed period is finalized and complacency sentiment runs out of steam. With the fear effect established, panic takes over investors’ emotions and buy/sell decisions. This of course results in major sell-offs in stocks and indices, such as the one witnessed in early Feb 2018 when Dow Jones and SNP500 lost 3450 and 350 points respectively.
The 1st drop was mentioned and explained back in Jan 2018, during the “Intermediate Elliott Wave Module – Video”., more exactly in the Indices Charting section.
The Flash-Crash was also predicted with the epic “CBOE (VIX) – Volatility Index – Pointing towards a Market Crash” article.
Since the big decline in February, US30 and SPX500 have been showing multiple swings, but mostly looking as if they are struggling to perform, resulting in a sideways type of rise.
The US Indices structures are pointing towards the possibility that the current position could represent the final stages of a corrective pattern. If this would turn out to be true, then another major sell-off would be needed to finalize the larger degree correction, so that the bull market could indeed continue to higher grounds.
While the Nasdaq 100 was creating new all-time-highs, the SNP500 was barely able to create lower-highs, not to mention that the US30 has been showing lower-lows. This typically extends the theory and points out towards a possible divergence between the US Indices.
Technical Analysis – Elliott Wave
The technical analysis below represents an Elliott Wave bearish outlook for the US Indices, under the presumption that an aggressive bearish swing could occur.
VIX – 2H Chart (picture)
VIX – 2H Interactive Chart
The VIX spike which occurred in early Feb 2018 has been labeled as Intermediate Degree (A) (orange), and the decline which followed labeled as a corrective Intermediate (B) (orange).
If the labels would turn out to be correct, then this could lead towards another spike in volatility and the Intermediate (C) (orange).
Intermediate (C) (orange) could cause a historical drop in US Indices if it would commence.
Dow Jones – 4H Chart (picture)
Dow Jones – 4H Interactive Chart
US30 overall structure paints a picture in which the Feb 2018 fall could represent Intermediate Degree (A) (red), and with the sideways corrective pattern labeled as Intermediate (B) (red).
Intermediate (B) (red) structure has been labeled as a Contracting Triangle, with the ABCDE (turquoise) sub-waves unfolding with complex swings.
Should the analysis be correct, then US30 could start a bearish leg, which could translate into Intermediate (C) (red).
SNP500 – 4H Chart (picture)
SNP500 – 4H Interactive Chart
SPX500 structure has been labeled as a Flat Correction, under a complex Double Three.
Intermediate (A) (red) reflects the Feb 2018 drastic fall and the 1st leg of the larger degree corrective pattern.
Intermediate (B) (red) unfolded as a sideways move, towards the up-side, with multiple legs reflecting possible corrective features.
If the Elliott Wave count would turn out to be true, then SPX500 could get rejected from the Feb 2018 bearish breach levels and could in fact deliver a massive sell-off in Intermediate (C) (red).
Nasdaq 100 – 4H Chart (picture)
Nasdaq 100 – 4H Interactive Chart
NAS100 shows a different structure than its fellow indices, with the corrective pattern extending with a complex structure towards the up-side, thus creating new all-time-highs.
Due to this divergence between the US Indices, it seems like NAS100 could in fact be the one in focus and the possible trigger, if a major sell-off would even start.
Summary & Techniques
The colored boxes represent Points of Interest and Vibration Levels, based on Waves measurements and Fibonacci calculations.
- Red – Bearish Breach
The red box represents the confirmation for the bearish breach and a trader would be looking for a corrective retracement towards the broken channel line for the retest, then the rejection.
This box could be used by those trades who are looking for more proof before acting.
- Orange – Strategic Levels & Vibration Zone
The orange box represents the Fibonacci measurements and the Vibration zone, the overall expected Reversal Area.
This box could be used by those trades who are looking to grab the opportunity right from the possible top and implies a higher risk.
- Blue – Extension & Points of Interest
The blue box represents the upper trend-line of the larger rising channel, and also multiple price action rejection areas, where bears would be expected to activate.
This box could be used by those trades who are looking for the top but in a more conservative way.
