Wednesday, November 14, 2012

Markets accelerate downward but the VIX volatility index lags

NOV14 1856PST. Markets declined briskly today, continuing in earnest a bearish move that began with President Obama's re-election last week. Two intriguing details:

1) The last week's downward "price velocity" -- the rate of price decline -- has been increasing relative to the past month of selling. As evidence of this, consider the hourly-candles chart of the NASDAQ Composite (COMP).

Price declines since late September have been contained by a well-fitting price channel, marked below in dashed yellow. In the last week, however, price action has been compressing ever closer to the channel's bottom support line and, in today's trade, has emphatically broken through.

COMP. March 1, 2012 to present. Hourly candles.
 2) Despite the markets' recording of fresh lows on increasingly bearish price velocity, the markets' principal measures of volatility are notably not at fresh 30-day highs. The volatility indices like the VIX (the CBOE volatility index based on options pricing for stocks of the S&P500 index) are, in the parlance of technical analysts, not "confirming" the indices' sharp moves lower, which somewhat increases the probability of a bullish reversal of the indices from present lows.

The hourly-candles chart of the VIX is below. The circled local maxima correspond to the circled price action events on the NASDAQ Composite (COMP) chart above. As the viewer can herself see, today's move by the COMP to fresh 3-month lows has not been matched by a corresponding rise in the VIX to a new 3-month high.

VIX. March 1, 2012 to present. Hourly candles.