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PREV (the Matrix)
Stocks fell sharply last week as concerns about earnings, the outcome of the US election, the future of European elections, and politics going forward crept into the majority's collective conscience. A sharp selloff in stocks often sees accumulation or a rising DI as price declines. The composite Equity DI rose, but it’s still bearish and statistically concentrated (see Matrix); the Equity DI2 has been falling steadily since mid July
The Equity DI, currently below -60%, would be worse, if not for the setup in the VIX market. The VIX's energy profile (DI = 6% and DI2 = 28%) reflects aggressive buying from retail traders. While retail traders are too small to control the contract for long, their unpredictable, inconsistent, and bad market timing skill often influence the short-term.
Expectations of a higher VIX (stock market decline) might not be a straight line event. Aggressive retail buying of the VIX, denoted by NR WA readings above 80%, increases the possibility of a short term selloff (stock market rally). C WA, a measure of commercial trader activity, has been above 80% for many weeks. C WA > 80% keeps VIX's DI2 above 20% and defines a strong bullish energy build in the VIX; a strong bullish energy build in the VIX is a longer-term warning for US stocks.
NR WA's spike above 80% ahead of the election increases the odds that retail traders will sell their longs into weakness over the short term. A possible scenario would be a post election rally into overhead reversals (resistance) that crashes NR WA and sends the VIX DI higher. After that, the VIX could spike again, sending the equity bulls into the fetal position.
VIX C WA & NR WA
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