CastAway Trader
CastAway Trader Predict the Next Market Move

VIX - UVXY - ES-mini - putting them all together

Let me show you how we count volatility charts to support the micro topping structure in ES-mini.

ES mini is futures traded on S&P 500 index. The Volatility Index, or VIX, is a real-time market index that represents the market’s expectation of 30-day forward-looking volatility. It is calculated based upon live quotes on S&P 500 index options. Because people price an trade options based on their expectations about the next market move that index provides a measure of investors’ sentiments. It is also known by other names like “Fear Gauge” or “Fear Index.”

When VIX goes down that tells you that less and less investors are interested in protection against decline in S&P index. That shows they are getting extremely confident in continuation of the current move up.

ES mini is futures traded on S&P 500 index. It reflects sentiments of the market participants regarding next move in the broad US equity market represented by 500 companies that comprise S&P 500 index.

Now lets look at ES mini chart below. The count suggests that after a brief and likely shallow consolidation in subwave b up ES will push higher again in the final subwave c of wave v up. That final exhaustion move up will most likely get slightly over 3,400.

ES - 45 min chart updated at 4-00 PM on 8-12-2020

Now lets look at the chart of VIX below.

There is no surprise it has been moving down all the time ES has been climbing up.

When the stock market keeps climbing higher the VIX index or “fear gauge” normally keeps going down. We count waves in that index to nail the moment when an impulsive down structure gets completed. If that moment coincides with the moment when the bullish impulsive structure in S&P 500 / ES mini can be also considered completed we get a high probability short setup for the equity market.

Looking at the count of VIX shown below I can make a case that it has either bottomed or needs one more lower low deeper into the Green target box.


VIX - 120 min chart updated at 3-55 PM on 8-12-2020

Finally, lets look at the chart of UVXY shown below.

UVXY is an ETF that provides x1.5 leveraged exposure to the S&P 500 VIX Short-Term Futures Index. Essentially UVXY is a tradeable instrument that lets traders make money on expected moves in VIX index.

If a trader expects the equity market to turn down and start a pullback he anticipates VIX index to go up because when market makes a sharp turn down traders start to load on protective put options on S&P and doing that they inflate VIX index.

The spike up on Tuesday, August 11th can be counted as a micro corrective wave iv up. That leaves some room for one more push lower deeper into the Green Target box.

Very often when S&P makes the final push higher put options do not make a lower low.  That divergence between S&P making a higher high and VIX index holding steady is a good confirmation of an upcoming bearish pullback in the equity market.

It could be the case that VIX has already bottomed but UVXY could make a lower low because that is a leveraged instrument.
If ES makes a higher high testing 3,400, UVXY makes a lower low but VIX makes a higher low that would make that bullish setup in volatility and short setup in equities look very attractive!

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UVXY - 120 min chart updated at 3-55 PM on 8-12-2020

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