I see a few scenarios taking shape. In 2008, the gap filled to the penny before reversing. This is one scenario. Another scenario is a massive island reversal OR we could just reverse on Monday as the gap seems to be acting like a resistance point. Whatever happens, I tend to believe it might related to that gap in some way just like it did in 2008.
I have been eyeing this gap for a long time as well. I think it is best to reduce position size as we will backfill that gap many times over until we get tired talking about it.
There is something else you should eyeball. Look at the two yellow ovals in the middle. From 9/11/2001 to the first set, price never made it through. Then on the second yellow oval it did. So this is a critical point and I think it has more meaning then just the gap in trading.
I dont have time right now to post up different charts, but this you can do by yourself. Look at the two yellow ovals in the middle. I think the current time might be mimicing either one of those ovals.
Nice job, very solid charts! I have been watching that october gap aswell, however, I did not see the similarity of the wedges. We will soon know if this rally was just a bear market rally! You add the volume drying up since March and the fact that oil and some of the JPY crosses are turning very bearish into the mix and there is good chance for another leg down.
For all those reading this thread, keep in mind that these charts are not setups, but technical studies. In any event, any chart has a certain probability behind it. There are no charts that have a 100% probability. I went back through this study and looked at the times price visited the current range. In the first yellow oval around 1999, the $VIX coming into that area was at the top of its range. When the $VIX moved lower then price broke over this area. In the second yellow oval, when price moved in that area, the $VIX was in the lower part of the range and when it went higher then price went lower. In the third yellow oval, when priced moved in that area, the $VIX had already broken through the support or floor for the range and so price then went higher. In the current area, price seems to be stuck in the same range as in the prior ovals. Now take a look at the $VIX and the lines drawn. The top blue oval represents a resistant point where it had deflected off of during the time price was in the area in 2002. The bottom blue oval is where $VIX had deflected off of in 2004. Fast foward to the present and what do we have? The $VIX is stuck between the two points visited in 2002 and 2004. The conclusion to all this is that you have to look closely at the $VIX. For price to go higher I think the $VIX needs to breakdown. For price to go lower, the $VIX needs to take out the roof. You have three other observable points in history to make this inference. Im going to post another chart to what I believe might be effecting the $VIX in the current time frame.
no doubt a rising wedge has formed. I think vol is getting so low that it if we move higher it will be like watching paint dry. Over the last couple of weeks we have a had drops but no one paniced, but its taking several days to make up the ground after the drop. probably a warning sign.
Here is what I noticed during the last few weeks. When oil and interest rates moved up, then the $VIX seemed to move down. Commodity prices and yields will be key to a move up or down IMHO.
Like I said before, each technical setup has a probability behind it. The rising wedge is one of the worst performing chart patterns. Here are a few examples of when this rising wedge went wrong: Article from 2003 about rising wedges appearing in the market http://www.thestreet.com/p/rmoney/theswingshift/10125485.html Article dated Nov 2003 about the rising wedge pattern on the DJIA http://edition.cnn.com/2003/BUSINESS/11/05/markets.europe.reut/ "The Dow is trapped in a rising wedge formation. This is potentially bearish and will probably end in tears,'' said David Franklin at stock broker and fund manager Christows. "The pattern may not yet be complete, and the Dow might push higher towards 10,000 or just above, but a break of the lower rising line of support will prompt a sharp downwards plunge.'' Finally, here is the 2003 chart (on the left) and the present chart (on the right). In 2003, the price did break below the wedge and ended September in the high 900s, but then turned right around and headed up 50 points in 10 trading days.