|In my previous articles I outlined the inverse relationship between VIX and Nasdaq. Based on my One-Two Punch timing model, VIX should be susceptible to a nasty decline if the second of two punches hits as a timing signal.|
The first punch already occured when VIX declined to the 22.5 threshold-- a bearish contrary signal indicating that the market has reached an extreme level of unsustainable bullishness. Now we wait for the "second punch," signaling confirmation that a move is underway. That occurs when VIX, at 22.39 as of March 20, 2002, closes above it's 20-day EMA (exponential moving average).
|The spring theory suggests that when in a lateral trading zone, a movement outside of the channel that proves to be unsustained results in a spring back up to the opposite channel. This causes a retest of the previous, upper congestion zone.|
|VIX "spring" potential|
|Graphic provided by: stockcharts.com.|
|The "spring" suggested by this chart hints that this move may have some power behind it via a minimum move to the upper channel area, maybe beyond. Should this transpire, fasten your seatbelt for a turbulent drop of two hundred points or more.|
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