Wednesday, November 20, 2013

Watching the TrendX..11.20.13

Today's action was negative, as suspected yesterday. 
In early going it looked like we were going to get some green but the FED's comments about a possible Spring taper of QE really put the damper on any positive momentum.

Its actually pretty frightening and illustrative of how fragile this "recovery" is that some nebulous remarks by a couple FED directors can crater the markets so dramatically. 
Kind of makes you wonder if the whole thing is just a house of cards.

Meanwhile the real time TrendX charts did a great job of keeping us on the right side of the trade.
The upper VIXEN chart went to SELL (intersection of SPY and SH) about 2 hours preclose and it was a great signal to get out or go short.  The supplemental 3 minute SPY TrendX dithered around the zero line in early going before the breakdown at about the same time.  The TrendX also did a good job of signalling the last hour rally.  Although SPY ended down for the day momentum retraced back to the zero line by the close...leaving us now in a neutral posture for Thursday.
On the SPY/SSO/XIV Trader chart volatility dropped in early action (remember XIV is the VIX inverse) but then the XIV crashed and the SPY was right behind it. 
Volatility often precedes price action (supposedly the venue of 'Big Money") and changes in the slope of the XIV should be tracked closely by short term traders.

This argument is supported by the default VEGA model when we observe the SH (red line) rise above SPY (shaded area) just about 2 hours before the close.

Laying these price charts on top of one another is a great way to confirm underlying price action.  Unfortunately, using XIV as a component tends to skew the X (vertical) axis of the chart since it is so just have to look a bit closer to discern what's going on....its often worth the effort.