VIX "h" Pattern Update - Daily & Weekly

Even though the broad market had a narrow range consolidation day, the VIX volatility index declined today. Generally speaking, a decline in the VIX has bullish implications for the stock market. Below is an updated daily chart of the VIX showing the h-pattern that I mentioned previously and a horizontal support line at the base of the "h". Notice the VIX closed just below that horizontal support line today.

Markets are fractal in nature which means that similar patterns occur on multiple timeframes and often simultaneously on multiple timeframes. Here is a weekly chart of the VIX showing another (higher timeframe) h-pattern and the horizontal support line. Notice the horizontal support line on the weekly is being violated.

Bullish Day and Close - ABX

Bulls owned it today with a gap up opening and a strong close on higher volume in both the NASDAQ and S&P. The VIX is still holding longer term support in the 35 area.

The previously mentioned daily coil in gold combined with weakness in the US dollar led to an upside range expansion move in gold. Of the gold stocks on my WL, ABX appeared to be the relative strength leader. Following consolidation at the ORH, the 10th 15min candle took out the ORH and closed at its high. I partialed at the 62% extension of the OR and trailed a stop at the lows on the remainder.

Daily Range Contraction

The following charts are examples from a scan for range contraction on a daily timeframe. The range contraction ratio (RCratio) indicator is in the bottom sub-window of each chart. Low values for RCratio indicate more range contraction. Range contraction often leads to range expansion. The direction of range expansion coming out of a low volatility point is uncertainty. The first chart is the Ultrashort Real Estate Fund (SRS). Many of the bear market ETFs have a similar pattern.

The second chart is a gold related chart. See the Technical Picture post from Friday describing the coil (involving range contraction) in many gold stocks.

Technical Picture - Gold Coiled

Based on the mid-day reversal action yesterday and the maturity of this rally, I thought the market had the potential to sell off today. Instead we got low volume consolidation action. The failure to follow through to the downside (on a Friday) increases the chances that the market will continue working/grinding higher in the near term. When the market does not do what you expect, change your expectation.

The current trend is still up in the NASDAQ and S&P with both trading above their respective 20 SMAs, and the 20 SMAs are above the 50 SMAs. The McClellan summations are trending up. The VIX daily has an "h" patten that implies the current support level may give way. Gold is coiled up and ready for range expansion.

Looking through individual gold stocks, you will see several nice "h" patterns on the daily charts. Here are three such charts with the "h" marked on AEM. Notice these gold stocks are trading below the 20 SMA, and the 20 SMA has crossed below the 50 SMA.

Seeing Stars on Indices - SCHN, FSLR

Longs need to be very careful here. The gap up opening was reversed mid-day and the broader indices formed high volume star candles on the dailies. The attempted push up (last 2 days) from recent consolidation could be a head fake at the top of a bear market rally. The market feels heavy and the VIX is finding support.
Stewie (The Impatient Trader) posted a daily chart of SCHN last night calling for a potential BO at the 48 level. I added it to my WL and the first two 15min candles were textbook GapnGO. It quickly exceeded the 62% extension of the OR. I took a partial on first weakness and got a better exit on the second half. Thanks Stewie.


FSLR is WL regular that stood alone today when sorting by %change. Due to the high price and volatility, I traded small and went down to a 10min timeframe to help manage risk. It quickly reached the 62% extension of the OR.

Beware the Chop - Vacationing Traders

I just realized why there is so much chop in market of late. Many/most of the traders at trading blogs I follow are on vacation (including Jamie and Trader-X). Without those market movers, we are left with chop as shown on the SPY chart below. There is nothing remotely resembling a trend day over the last 5 days. The good news is that consolidation is either accumulation or distribution and will eventually lead to a nice expansion move (up/down?).
This morning VRTX hit my scanner based on %change from open and big volume. The daily had broken out above a trendline and the 15min setup a low-risk entry at the 30min ORH. It easily reached the 62% extension of the OR and went beyond. Even when the overall market is in chop mode, a strong setup in an individual stock can lead to a trend day (i.e., opens near the low/high and closes near the high/low).

Technical Picture - USD and Gold

The uptrend of late is still intact in the NASDAQ and S&P. There is a divergence with the NASDAQ closing at a new recent rally high on Friday while the S&P did not. Friday was a light volume day. The McClellan summations are still trending up but with decreasing slope. The McClellan oscillators are tightening above zero.

After a complex consolidation, the US dollar has turned weak in the last several sessions. The inverse correlation drove a rally in gold on Friday. The charts below compare daily charts of several gold stocks including the index ($XAU). I have placed the charts in approximate order of increasing relative strength. Notice that GOLD (Friday scanner hit and trade) was the relative strength leader among the charts shown - look at Friday's opening price and action relative to the 20 SMA and 50 SMA.