Tuesday, June 9, 2009

VIX - The Story Teller

Once again the VIX bounced off of the 20 dma from last week and slid lower. I know you are tired of hearing it but clearly this is a key resistance and until it breaks this trend, the market will continue to edge higher. Yesterday and today both provided opportunity to shorts to get out of their positions and the VIX clearly showed that the market is settling in at current levels with very little selling pressure.

We should see the SPX move higher from here. Any move down is probably a head fake unless the VIX can pass the 31 mark. I don't think that will happen. You have to avoid being overly short here and you have to consider commodities and emerging markets right now as really good plays at least for the short term.

I think we are creating quite a powder keg. Once the VIX does pass the 20 dma, I think we will see a significant downward move in the market which may last a couple of months. Until then, you need to avoid over extending short positions. This may coincide with the EWT'ers who are pronouncing a P3 wave coming up and perhaps it is but the difference between what I am saying and what EWT'ers are saying is, I think this will be a move down based on fundamentals and technicals in an overpriced market. I also think we are currently in a very long term P3 wave that started in 2007 so I am looking at EWT as a much longer term wave structure as in years, rather than months.

I am keeping a close eye on Natural Gas. The chart is very interesting and it appears ready for a breakout to the up side but it needs an impetus. Why would natural gas go up when demand is low and supply is high? Well, that would be a great questions and fundamentals would say it should be low. But it is already low. So my view is that natural gas is the forgotten commodity that has some catching up to do.

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