The VIX has been creeping up since the low of 16 back in May and continues to climb. Today's close at 28.48
The last 3 VIX highs all signaled short term bottoms and hit highs of 37.50, 37.57 and 35.60. The economic conditions when we hit those areas seems rather tame compared to the domestic and global issues we're dealing with today. In my neighborhood we're a few cents away from $5.00 gas. The Government tried to come in over the weekend with a band aid for Freddie and Fanny which helped the pre-market futures, but the market tanked from the open to close at a new 2 Year Low. The price action and VIX action is reaching critical technical levels where many are expecting a capitulation move that never happened during the first big drop in March. There was a nice bottoming tail on the SPX on March 17th, but there wasn't any real panic intraday compared to the action we saw on January 22 when there was a 48 point intraday range and on January 23 when the SPX had a 69 point intraday range -- that was capitulation!
Although I would never go as far as to predict what will happen, the ingredients for another one of these "large range" days is brewing with the most important factor in my eyes being the lack of any recent support below the 1225 area. If it cracks below that area it will mean that everyone that has been long since Nov 2005 is wrong.
The SPX closed at 1228.30 today and the VIX closed at 28.48. The next level of support I see below 1220 is 1175 which is a quick 50 points where the SPX sits right now. Take a look at the daily candle for August 16, 2007 and you'll see the same scenario was there on August 15th -- support was months old and fell over 40 points intraday on the 16th to retest those old March 07 support levels.
In summary, the SPX may pull out a little miracle here and support at 1220. However, if it doesn't the charts suggest that it may fall very quickly to retest the 2005 support levels near 1175. The SPX charts illustrate how it moves historically when support is absent.
Either way there are some tremendous profit opportunities out there right now, just make sure you're nimble and stay on the right side of the trade. The whips will be quick.
VIX Daily Chart:
SPX Daily: The August 16, 2007 Capitulation
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