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VOLATILITY


Is VIX "Spring" Setting Up to Kick the Nasdaq Down?

03/26/02 11:08:50 AM
by Gary Grosschadl

The Market Volatility Index's (VIX) new recent lows may mean a potentially explosive move is coming by virtue of the "spring" theory.

Security:   Nasdaq/QQQ
Position:   N/A

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.



Gary Grosschadl

Independent Canadian equities trader and technical analyst based in Peterborough
Ontario, Canada.

Website: www.whatsonsale.ca/financial.html
E-mail address: gwg7@sympatico.ca

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Comments

Date: 03/27/02Rank: 5Comment: I try to follow the Vix as closely as possible. I truly appreciate your article and believe you to be EXACTLY right.
Date: 03/27/02Rank: 5Comment: Well in Barons last week they had an article saying that 14 to 19 is the more historical level prior to the craziness of 2000 to present. So their conclusion was/is that this concern is not taking that into account. What think ye?
Date: 03/27/02Rank: 1Comment: 7 days later, Now what?
Date: 03/29/02Rank: 5Comment: 
Date: 04/02/02Rank: 5Comment: I am not overly optimistic about the upside potential of the Nasdaq or S P. This article seems to portray the true picture of what is coming.
Date: 04/16/02Rank: 5Comment: 
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