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John Winston, Chief Investment Strategist of Active Trading Partners.com. is a recognized industry expert who specializes in providing financial advisors, hedge funds and individual traders…

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Chris Vermeulen

Chris Vermeulen, founder of AlgoTrades Systems., is an internationally recognized market technical analyst and trader. Involved in the markets since 1997.

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Massive VIX Warning for All Traders

My analysis of the recent VIX action is clearly warning of a potentially massive price volatility increase in the US and global markets. Many traders use and trade the VIX as a measurement of volatility. The VIX is a measurement of the expected market volatility over the next 30 days. As the VIX rises, traders expect larger and more volatile price swings. As the VIX declines, traders expect smaller and more narrow price swings.

Currently, the VIX is near historical low levels and has recently past a critical cycle midpoint.

Daily VIX Chart

One can see from my cycle analysis, I am tracking to cycle events; a longer term top-to-top cycle event and a smaller bottom-to-top cycle event. I call these dual-phase and single-phase cycle events, respectively.

This analysis tells me we recently past a single-phase bottom cycle (near Nov 30th) and are expecting a dual-phase top cycle event near Feb 17th. Given the expected opportunity to retest the VIX high channel, the potential price move in the SSO would relate to a 11%~16.5% price swing (approx) - or larger.  The dark blue downward VIX channel is a boundary that we would expect the VIX move to attempt to reach. It could blow past this level and develop a much larger price correction in the US and Global markets but lets just focus on one target at a time for now.

Now, let's take a look as how this relates on the SSO chart.

On the below SSO chart, I have highlighted the critical VIX "Peak" levels with rectangles and I have drawn the VIX Single and Dual phase event cycles.  You can clearly see how these event cycles align with critical price swings and, most recently (after the US election cycle) correlated with a cycle event low and high.

Proshares Ultra S&P 500 Daily Chart
Larger Image

On the hard-right edge of the chart, I have drawn what I believe will be the likely VIX cycle event target range and target date range. I expect the VIX to increase moderately over in the next week or so and explode as stock prices rotate lower. I expect the US and global markets to react to these time cycles and for an increase in volatility. The chart shows a sharp correction as that is the max potential, but we could only see a 2-5 day dip before it heads higher. Either way volatility should jump soon and I plan to get involved with an ETF.

Our last few ETF trades generated some big profits with EDZ 20.7%, NUGT 11%, and UGAZ 74% return. I feel the VIX is starting to show signs of an opportunity unfolding.

 


Join www.ActiveTradingPartners.com to stay up to date with my analysis and learn how to take advantage of my weekly stock picks and market forecasts as we gear up for another incredible year of trading!

 

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