As a thought exploration evolving from the VIX pullback…
If the VIX were to drop to an extreme test of its potential new uptrend, we’d be looking for the 19 area and/or a higher low to the last January low. Markets, when they get a bit in their mouth, often seem to push the limits in order to put the herds back to sleep (or going the other way, push the limits in order to terrify them sufficiently as with last week’s spike). So while not nearly a given, I think there is a good chance VIX can drop that far as relief sweeps over the land.
So what areas might the major US indexes target? If VIX goes back to its break ‘up’ point, markets may be expected to bounce to their break ‘down’ points.
For SPX that breakdown point might be the whipsaw reversal candle (shaded) that terminated the rally below 4750. That is, assuming SPX can take out the noted lateral resistance it is approaching. Let’s make no assumptions in a market that has put in some negative markers, most notably the lower low to October. But if this rally is just a bounce and if it is suitably strong I’d see SPX making it back to that candle as the high end, with some caution beginning at the SMA 50.
NDX has more potential upside before it reaches its first firm resistance area and that makes sense, since it also dropped harder. Its upside target could be the area where the SMA 50 is declining to meet that resistance. Let’s call it 15,600. There’s the oval shaded failure candle in that area.
SOX, the only major index that did not put in a negative lower low marker (it whipsawed and made a bullish reversal the same day), also has a lot of implied upside, assuming the rally continues and assuming it’s just a bounce (again, no assumptions, just week to week refining of signals/data/inputs). The reversal/failure candle is above 3800 with the SMA 50 easing toward clear resistance in the 3700-3750 range. That range looks like it is begging for the index price to come give it a kiss.
