Both Monday and last Friday, VIX failed to keep most of its gains. Amidst this, there is strong support at 11-12, and a 10- and 20-day crossover seems imminent. Concurrently, the S&P 500 formed back-to-back hanging man, which is bearish but needs confirmation.
Yet again, volatility bulls were unable to hang on to most of Monday’s gains. VIX rallied as high as 14.31 intraday but only to end the session at 13.11, up 0.19 points. This follows last Friday’s reversal with an intraday high of 14.87 and a close of 12.92; this was the second consecutive session of failure at the 200-day moving average (14.69), coming on the heels of Thursday’s intraday high of 14.88 and a close of 14.47. In the end, last week ended with a shooting star (Chart 1).
The volatility index acts like it wants lower prints.
That said, a couple of things need consideration. (1) Going back six years, volatility bulls have repeatedly defended 12. And (2) a crossover between the 10- and 20-day is in the making; should it complete, this should bode well for volatility.
This would have come at a time when equity bulls aggressively bought intraday weakness in two consecutive sessions. Monday, the S&P 500 tagged 5234 intraday and finished the session at 5283. Last Friday, the large cap index dropped all the way to 5192, with the 50-day now at 5182, before reversing higher to close at 5278. Horizontal support at 5260s were breached intraday in both sessions but not by close. As a result, a hanging man, which looks identical to a hammer, formed in both these sessions.
This candle, which shows up in an uptrend, needs confirmation. Friday’s hanging man would have been confirmed on Monday had the session ended near the lows; instead, another hanging man formed. How the index behaves for the rest of the week has now become important.
With only one session this week, a hanging man has also formed on the weekly. This follows last week’s hanging man and a long-legged doji before that. These candles appeared after the S&P 500 experienced a massive intraday reversal on May 23rd when in a bearish engulfing session it reached a new high of 5342 but reversed to close at 5268 (Chart 2).
As things stand, bulls have an opportunity to put their foot down with a breakout of short-term trendline resistance and then charge toward short-term lateral resistance at 5320s. Inability to do so would enhance the odds that the back-to-back hanging man gets confirmed in due course.
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