Was Friday A “Fluke” in the US Markets?

Was Friday A “Fluke” in the US Markets?   Friday, the markets went up drastically to close out the day positive but the week ended down still.    Was Friday a sign of a bottom?    Every little event is causing people to ask this question.     Let’s analyze the markets and see what is going on and answer the question with a YES or NO.    A simple answer.

In 2015 and going into 2016, we have been using the $VIX, the S&P Volatility index as a leading indicator for the market forecast.    This indicator in conjunction of the $ES E-mini SP500 futures has been giving us a weekly/monthly forecast.

Below is the weekly $VIX chart provided by eSignal.  The $VIX has in inverse relationship with the US Stock markets.

3 weeks ago, we reached the support at 20.61 and at that time, we took a majority of our bullish positions off and/or tightened our stop.   We also started to look for bearish positions since there was a high probability of the $VIX bouncing off the support and start moving towards the major resistance 32.07.    This would cause the US Stock markets to go down.  This was posted on the social networks during that week.

Please note:  we verify long term support/resistances with lower time frames since correlations can be broken anytime.

2016-02-14_vix_monthly

The goal is to stay bearish in the US Stock markets until either the US Stock markets reach a major support or the $VIX reaches it’s major resistance.     When one is reached, majority of the bearish positions will be removed and for the other bearish positions, we will tighten our stop.   We don’t exit all our positions because the market can break support/resistances.    This is why we keep some positions and for those positions, we tighten our stop so we don’t give back profit on them.

As of right now, the resistance has not been reached.   We got close to it but that is not good enough.   We will look at the daily time frame to see what is going on since we got close to the resistance but didn’t reach it exactly.

Below is the daily time frame.    It is showing that Monday is going to be a very critical trading day.  If the markets go down and the $VIX goes up then we will continue to have a high probability of reaching 32.00.     If the markets go up and the $VIX closes down, then the short term support will be broken and the probabilities will increase to reach the support instead of the resistance.

2016-02-14_vix_daily

Let’s examine the $ES Emini SP500 futures and see if they agree with the VIX forecast.

Below is the monthly chart for the $ES provided by eSignal.   The chart is a bullish trend which is being controlled by a major support at 1932.82.   As long as this support holds, the major bullish trend will continue.   Last month, we held this support even though majority of the month, we were below the support.   This month, we are below this support again but it doesn’t mean anything unless we close below this support at the END of the month.

2016-02-14_es_monthly

Below is the weekly time frame.    Last week, we retested the lows from January again.    We held the lows but we closed lower.   This is still a “sign” that the markets can lower.

2016-02-14_es_weekly

Below is the daily time frame.   The daily time frame is in a bearish trend which is not showing any weakness as of yet.

2016-02-14_es_daily

In conclusion, both the $VIX the $ES are indicating that the market can go lower this week with Monday being a very critical trading day.     Friday’s push upwards was a fluke right now because the push was not enough to weaken the bearish trend.

If Monday close higher then maybe, some type of weakness could be seen but until Monday trading day ends, we will not know.

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About the Author Manesh Patel