THE VIX FACTOR – just a ‘little’ capitulation away from lows

One very crucial part to determine when the low is in for the US markets will be the VIX making a top. We will jump out of this triangle pattern to count 3 higher highs above 47and penetrate the 50/2 level very likely the upcoming week (marking the TD seq 13) and make a sharp turn below 40. This triangle formation above the gap confirms another thrust up is required. That should translate into SPX NDX and DOW dropping another 2-5% and reversing up sharply thereafter. Targets remain at the 1050, 1450 and 10000 area (SPX, NDX, DOW) roughly, but exaggerations are possible and the levels are benchmarks (61.8% retracement) with a tolerance of 1-2% . Levels at or above 50 for the VIX are rare and create big opportunities.
The European meeting for the bailout package was without any results and the bailout of Hypo collapsed as Deutsche Bank evaluated the capital requirements to be far higher than discussed (instead of 15 bil. short term its 50 bil and for 2009 up to 100 bil. EURO). Central banks are still hesitant to act and I assume as they see the markets dropping they will have to act. Another big factor is that the OTC (over the counter) market between institutions for interest rate markets and borrowing transactions has completely stopped working, due to severe distrust of counterpart value. Besides the rate cuts, we also need to see central banks coming up with a solution like a clearing house function. That brings me to the point that the low of the upcoming week might not be the final one and a retest until early November might be due. In one week earnings season get started and will be a heavy burden on the markets, since investors already look for a recession and it’s not only about financials any more.


~ by behindthematrix on October 4, 2008.

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