Update on S&P500 and VIX

Recently, I spent almost two weeks together with my family on a self drive holiday in northern half of Italy. The Tuscana landscape is simply mesmerising. The Dolomiti mountain is awesome and the Como lake district is peaceful and tranquil. If you visit Italy and tire of ancient buildings, do visit these three places.

In late Mar 09, we compared VIX in 2008/2009 against that of 2002/2003. We saw similar pattern in VIX for the two different periods. S&P500's lowest point of 667 on 6 Mar 2009 was correctly identified. S&P500 has since risen to 956 on 11 Jun 09 before easing a little until now. That highest point was almost 43% gain from the market low. Can S&P500 reverse the recent downward move and surpass the high registered on 11 Jun 09? To answer that, let us re-examine the VIX charts.

In 2002/2203, VIX hit a high on 5 Aug 2002 and trended down in a volatile manner. Only after VIX's 200ma crossed below 50ma and VIX retreated from the 4th peak group (PH4) did we see VIX returning to steady state of below 25 points. During the steady state, S&P500 rose and made a series of new highs before reaching 2007 market peak. We can thus conclude that low VIX value is a reflection of low fear in the market and a confirmation of up trending market.

In order for VIX to enter into a steady state, its 200ma must cross and stay below its 50ma. That was fulfilled on 24 Apr 09. We can now assume that VIX has entered into a steady state so long as it stays below 35 points, preferably lower.

In order for the market to have a substantiate and prolong upward move, S&P500's 200ma must also cross and stay below its 50ma. That condition was fulfilled on 23 Jun 09. Incidentally, S&P500 price met its cross over of 200ma and 50ma around the same time. When that happens, the tendency is for the price to move higher and away from the 50ma and 200ma thereafter.

Elliot Wave practitioners will find that S&P500 may have completed the downward wave 4 and is seeking confirmation that upward wave 5 has started.

The week 26 (22 Jun - 26 Jun) has seen more accumulation days than distribution days on comparing with week 25.

In summary, we expect S&P500 to surge forward and likely to test 1000 points and beyond in near future. When that happens, it will certainly encourage other markets to leap forward too, especially STI. Already we saw some property blue chips displaying the bullishness.

Caveat emptor