How Our Analysis Forecasted Today’s Big Move

Well hey gang, Rob back with you and Happy Monday. I couldn’t be more excited about today’s price action. As we started off this morning you’ll notice you can see the time stamp here (8:21 Central Time) and one of the first things that I talked to the group about was the VIX. This is something I’ve been talking about for the last several days. In fact, I even have the VIX up on my quote screen for you as well as we’ve been discussing it quite a bit. My thought is to start looking for start long side plays through various means. We could do UVXY and different things like that.

Sure enough, we had that conversation and once again this morning, to kick this off. The fact that every time we get down to these lows you get these nice retracements back off these areas. Then we also combined that something else that we were seeing here this morning as well which was the volume. This morning we talked about the volume as well and the comment was “look, we’re going up and kicking off this morning at pretty light volume.” You’ll notice that some of the other days had much higher volume in recent past. The first couple bars had much higher spikes. You see that? (on my charts at 1:33) This morning we had much more lethargic volume and I commented to the group that that’s kind of a big deal. We had the VIX here at levels where institutionals are looking at this saying, “hey what am I going to do with this? I don’t necessarily want to be the individual buying for my fund in my portfolio at these highs knowing that this market may be due for a reversal.”

We came in this morning with the lighter volume to the upside and then the whole thing comes crashing down with more tapering news. Last time, and this is interesting because a lot of people were commenting on the fact that the last time, the tapering move made the market go up and this time the market went down. I find that much more reliable. The second time around, what does the market do? Plus, remember last time was in the middle of December where we were going right into the holiday and we get that more one-sided holiday trade. We talked to you repeatedly though that once the volume comes back and people start looking at this with a fresh eye that it could lead to some pullbacks. So between the VIX and other signs here with the lack of volume to the upside the focus has been pretty straightforward that we’re going to be looking at this market to break down. That’s primarily what we’ve been looking at.

The Three To One Rule On The Stock Index Futures

We talked about the VIX to start off then we went ahead and did the count. We pointed out that the NASDAQ, the Russell, and the S&P all were above the speed lines and yet the DOW was down below them. We were looking for the three to come back and meet the one. Boy did they ever go ahead and do that. That went ahead and offered up all sort of different trading signals throughout the afternoon session. Once we got that NASDAQ, Russell, and the S&P breaking down below those levels going into the afternoon that is when it finally happened.

Great stuff. We followed through using that concept that I showed you guys here (even in the public environment let alone what we do with it in the Live Trading Room).

As we go into tomorrow you’ll notice that we are going to start off with all of these stock index future in key rising support areas. While we may be due for some short term retracements back to the upside, as far as I’m concerned, I’m going to be hunting for short side opportunities as long as we remain down below the speed lines. So, we’ll be keeping an eye on all four tomorrow to see if one deviates from the three. Right now, the strategy has been working well, to keep focused on what’s happening. It looks like this morning the DOW was weak and the others looked stronger and kept trying to rally to the upside. I warned people that it was likely a fake move until that DOW cooperates. The DOW just couldn’t cooperate. It popped up a few times and couldn’t get back through the speed lines and then rolled over and came to the downside.

We’re going to be looking to see if we can get follow through shorts. We might be due for a little bit of a retracement back up since we are hitting a lot of rising support here. We had the tapering news, we had the VIX at lows where we can see multi-day/multi-week pops back up which could bring the market down further. That’s kind of overall what we are going to be focusing on for now until we get these stock index futures back above the speed lines.

Great stuff today and looking forward to follow through with that tomorrow morning. You guys have a great night and I’ll see you in the Live Trading Room in the morning and in tomorrow night’s videos. Take care.

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