Technical Laboratory Update For The Week Of August 21, 2016

Happy weekend everyone!  Finally our week of MSP timing is upon us, August 22nd to 23rd to be exact.  Looking at the longer term preferred path that was outlined in the first Technical Laboratory update (here) we found our near term target of 2191 and promptly reversed following the preferred path towards 'Diag 4'.  Also from that post we discussed how presidental election cycle seasonality coincides remarkably well with what we are seeing with the long term MSP.  This adds a degree of confidence to weakness beginning around this week into the first of September and running through to the first of November.  The secondary options are still structurally 100% viable but we will not concern ourselves with them, so long, or until price gives us reason to question the preferred magenta path.

SPX Intermediate Term

SPX Intermediate Term

The next chart of focus is that of the VIX.  For anyone not familiar, the VIX was designed to be a gauge of volatility expectations looking forward in time by 30 days.  On a longer time frame it becomes very valuable because it shows that historical periods where volatility is low, between 10.00 and 12.00 leads to a decent size uptick in volatility within the next six months.  With the exception of 1993 and 1995, past instances of this chart finding the ten to twelve zone have lead to runs from a minimum of 17 up to as much as 150.  We entered into this zone at the beginning of July as you can see from the chart below.  This increases expectations of market volatility dramatically and coupling that with what we already know with regards to MSP and presidential cycle analysis we have a recipe for a very volatile fall.

Volatility Index

Volatility Index

In conclusion, although we are a stones throw from the all time highs, evidence is piling up that points to it being increasingly dangerous as the days pass to be long the market.  Good luck this week and profitable trading.

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