VIXSince 5 Feb 2010, VIX has been falling from its pivotal peak (29.22 points). It gaped down further on 5 Mar 2010 to 17.23 points as market confidence regained ground considerably. Two possibilities may happen in the following week:
1. Based on the on-going momentum, market will continue to build confidence and lower VIX further to such a level testing the 12 months low of 16.86 set on 11 Jan 2010.
2. It is time that VIX may undergo some degree of technical correction after falling more than 40% from the last peak. If the 2004 pattern were to repeat, this technical correction (rising VIX) may last some time, possibly around 3 weeks.
S&P500 (GSPC) Projections In first scenario, S&P500 will move up possibly making new high when VIX falls further. That will be good for all the bulls. Once 1150 is broken (unlikely but market will decide), the target could be 1180 and beyond.
In second scenario, On the contrary, S&P500 will dip and consolidate when VIX goes through a technical correction in the coming weeks. The target is around 1050.
Key Observations
Do note that the gap down of VIX on 5 Mar 2010 was similarly observed on 23 Apr 2004. The latter VIX gaped up on subsequent day and formed an imperfect "Island" (candlestick terminology). The "Island" is known to be a turning point for trend reversal.
STI
Will STI dip below its 200 days moving average (similar to 2004 pattern) ? If scenario 2 in above US market were to take place, STI is likely to fall towards its 200 days moving average and below similar to 2004 pattern. In that scenario, the STI target will be around 2300.
Possible Action
1. If one is unsure of the risk and return involved, do not take any position.
2. If one feels the market is bullish, take appropriate position, monitor the market closely and act decisively accordingly to trade plan.
3. If one feels that 2004 VIX pattern will repeat in 2010, wait for confirmation signal and take the appropriate position to benefit from it. Do not trade without a proper trade plan.
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