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PREV (the Matrix)
New alignments: Corn and silver
The Matrix has been updated for two new VIX ETFs - VXX and VXZ. These ETFs represent the short and mid term VIX and are key components in the calculation of the VIX model and correlations. The VIX model, a measure of direction for the intermediate trend in stocks, remains in bull phase.
VIX correlations, however, have been warning us that the bull phase was vulnerable long before tweets that new sanctions could be levied on China this Friday. Anyone that tracks the Matrix understands the whole US China trade narrative as an excuse rather than the cause. The cause is always the invisible hand, NOT headlines. The invisible hand can only be understood by the objective discipline of the Matrix. I can't stress this enough. Talking heads often provide the impression that markets are random. They're not. The current hit in US and global stocks was telegraphed by dislocation in the S&P 500 and VIX, term structure within the VIX, and the VIX DI. Correlations between the S&P 500 and VIX and short-term and mid-term VIX spiked well ahead of the tweets. We also saw the VIX DI climb above 60% as far back as 3/26/19 (see VIX DI). Bullish setups, DI readings above 60%, warn subscribers of statistically extreme distribution across the futures and options market. Extreme distribution often suggests at least a hiccup ahead; sometimes it's more, and occasionally the dislocation relieves itself without incident. A high DI for the VIX increases the odds of spike which can coincides with a sharp, often temporary, decline in stocks. The Matrix's output told us to stock chasing, possibly lock some profits, weeks ago. This is not hindsight analysis but rather the truth discussed by the Matrix, not me.
What emerging trends is the Matrix hinting about today as the VIX becomes old news? Lots of things. One is accumulation in the Natural Gas. The rest I leave for subscribers to discover. If you want to discuss these trends, contact us.
Using the Matrix
The value of the Matrix is far more than a study of price. Trends are a function of price, volume (force), volatility, and TIME. The order of their importance is as follows: (1) TIME, (2) volatility, (3) volume & price alignment. Volume and price alignment, a setup that triggers action, favors Grade A & B, early cycle markets under high compression (↓COM). ↓COM suggests extremely low volatility, a quiet trend ready to explode into high compression (↑EXP). Weekly and monthly breakout signals are not finalized until the end of the week and month, respectively. Signals generated before that could be temporary. Keep this in mind when reading alignment.
Suggested Reading: The Cycle of Accumulation and Distribution (CAD), Leverage Oscillator (LTLO), Diffusion Index (DI), Volatility Bandwidth (BW), Compression (COM), Expansion (EXP), Alignment, Upside Alignment, Downside Alignment, Sentiment Model, Intermarket Trends, VIX Model, Economic Activity Composite, Long Term Cycles.
Subscribers are encouraged to submit comments or questions about the Matrix/Insights.
Market-driven money flow, trend, and intermarket analysis is provided by an Insights key.