Ichimoku Update : Sell in May and go away! Is it going to happen? This is the phrase most people hear and the media keeps on repeating it over and over especially when the markets have a down day. Will this happen this year? Instead of listening to other people, lets look for proof in the charts.
In order to forecast the market, we have to find an instrument that gives us the ability to read the charts and forecast the US Stock markets. Up to now, we have been able to accurately forecast the markets with the #VIX, S&P Volatility Index. It has been working up to this point and we will continue to use it until it doesn’t. We teach in our Options University class on portfolio management so we will use it in this article to determine if Sell in May is going to happen.
Below is the weekly chart for for the VIX instrument provided by eSignal. The VIX has an inverse relationship to the US Stock markets. If the VIX is going down then the stock market goes up. If the VIX is going up then the stock market goes down.
On the chart, we have two zones. One zone is between 32.21 and 20.74. The other zone is 20.74 and 12.77. We are in the lower zone. When we entered this zone, we looked for price to get to the support of 12.77 so we were bullish in the stock market. Once we get to the support, we are bearish to get the resistance at 20.74. Going back to 20.74 is counter trend so we have to analyze the lower time frame to confirm it going back to the resistance level.
Below is the daily time frame.
On the daily time frame, we are in a bearish consolidation pattern which is trying to break the resistance to get into the cloud to go to the resistance of 20.74. As long as the daily support at 15.06 holds, there is a high probability of getting to major resistance. If the support is broken then we will continue to consolidate between 12.77 and 17.08. Note, if price gets in the cloud, it is going to be an “ugly” ride to the major resistance….i.e. lot of volatility!
Below is the 240m time frame.
The 240m time frame clearly shows the consolidation pattern we have been in. If you look at the pivots, they are slowly going up. Price is going back and forth with the cloud so price is not respecting this time frame at all.
In summary, the daily support at 15.06 is controlling the bullish price action for the VIX. If this supports then we have a high probability of getting to the major resistance. This means the markets are short term bearish as long as this support hold. If the support breaks then we will be short term bullish. Notice, we are using the words short term. Our analysis is showing that short term movements are taking place now …not long term. This is indicating we are going to have an “ugly” summary.
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