Dan Gramza, of Gramza Capital Management Inc., explores and the current daily market activity in maj...
VIX QuantCycle Flashing Warning Sign
02/26/2019 9:07 am EST
We figured it was a good time to examine what the QuantCycle Oscillator’s view of the market’s fear gauge is, writes John Rawlins.
Traders and analysts are excited about the trading prospects for the week ahead. We are nearing a major deadline on the U.S.-China trade talk negotiations, there are a slews of economic reports coming out as well as some major earnings announcements.
With this in mind, we figured it was a good time to examine what the QuantCycle Oscillator’s view of the market’s fear gauge, CBOE Volatility Index (VIX), shows.
It turns out, a lot.
Last week we noted that there were some signs examining QuantCycle charts —including near oversold conditions in the VIX—that equities indexes may be near a significant top.
Those conditions in the VIX QuantCycle have grown stronger, with the daily QuantCycle on the VIX moving to an alert level.
The daily QuantCycle turned bullish on the VIX at the beginning of February. With the VIX drifting lower, the QuantCycle shows it nearing oversold conditions while it indicates the VIX will move higher the next three weeks.
As you can see (chart below) the 240-minute QuantCycle window confirms this view on a shorter time frame.
The 240-minute chart expects the VIX to rise through Thursday.
As we noted a week ago, although the long-term chart of the VIX shows oversold conditions and the market moving higher over the next month, this does not look to be a capitulation move.
Overall, the weekly QuantCycle on the VIX sees it moving down after a month-long uptrend. There could be a major bottom in the VIX—usually a top in the S&P 500, some time in May, which would make sense, cyclically.
The QuantCycle indicator is a technical tool that employs proprietary statistical techniques and complex algorithms to filter multiple cycles from historical data, combines them to obtain cyclical information from price data and then gives a graphical representation of their predictive behavior (center line forecast). Other proprietary frequency techniques are then employed to obtain the cycles embedded in the prices. The upper and lower bands of the oscillator represent a two-standard deviation move from the predictive price band and are indicative of extreme overbought/oversold conditions.
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