Friday, January 30, 2009

Volatility Double Bottom

Volatility is primed to rise. A potential double bottom could be shaping up, with a push to the neckline at 56.89 a distinct possibility.

In the short term we could see a move to the 50-day MA as the S&P works on a November low test. If November lows hold in the S&P then I would expect the VIX to retreat to and then below its 200-day MA; creating a seasonal rally which could last into May.

If S&P November lows were to break as support then I would see no difficulty in the VIX cracking through 56.89 and set up another sharp loss scenario for the S&P, with the VIX pushing 80 yet again.

My hunch says November lows will hold for the S&P but I can see the potential for disaster if they didn't.

Dr. Declan Fallon, Senior Market Technician, the free stock alerts, market alerts and stock charts website