In case you don’t know, the Vixen is the NASDAQ version of the more famous Vix. And it just so happens that the Vixen has formed a bullish falling wedge pattern on its hourly chart since the big gap-up open on January 20th (click to enlarge):

This pattern implies that the market may be intending to take another trip back down to the bottom of the trading range in the near future.

Here is an example of the black magic that you can sometimes achieve with Fibonacci retracements.

Lets go back to June when the Russell 2000 small-cap index looked like it was going to the moon during a bear market rally (click to enlarge):

Now, suppose you wanted to short that crazy chart without having your eyes gouged out with a hot poker. How do you pick an entry point? One way is with a Fibonacci retracement. Using TradeStation’s fib tool, I have drawn a retracement from point A to point B. I chose point A because that was the cliff that prices dove off of. Notice that one of the magic fib levels, 161.8% (blue line) happens to match up with the peak:

And that was the exact point where the rally topped out:

Pretty amazing, right? Of course, prices could have moved up to the next fib level. Nothing is guaranteed in the stock market. But Fibonacci levels give you hints about price levels that may turn out to be important.

Learn more with The Harmonic Trader, a free book that you can download.

Note: I tweaked TradeStation’s Fibonacci tool to add the extra levels recommended in the book.

Candlestick Pattern
The SPX’s two-day candlestick pattern is very close to a bearish shooting star. On the other hand, Tuesday was the only winning day-of-the-week in 2008. According to Scott Rothbort (subscription required), Tuesdays were up 22.79% last year, while the remaining days were responsible for dragging the market down.

FOMC
The market rallied ahead of the last FOMC meeting on December 15th, so maybe we will see traders anticipating another such rally. Perhaps all the rallying will be done before the announcement on Wednesday. Of course, the market plunged after the December rally.

Because the last meeting was the kitchen-sink meeting, what with the ZIRP and all, I can’t imagine that the FOMC has something to shock and awe the market this time. Perhaps they will announce a new program of firing quarters from howitzers installed on the roofs of every Fed bank branch. The coins raining down on cities across the country will damage cars and boost new-car sales. Picking up all of those quarters will keep the unemployed busy, etc.

Hot Stone
The futures are dropping like a hot stone from outer space again. Does the market have the buying power needed to overcome yet another substantial gap down opening?

Here is an hourly chart of new 52-week lows on the NYSE (click to enlarge):

Since this number starts at zero each morning, the bars grow higher as a bad day for the market progresses. The pattern reminds me of a herd of giraffes, and the giraffes grow taller as the market declines. Friday’s giraffe was 133 stocks high; just a baby compared to the giraffes of 2008, so there is room to grow.

Bernanke will be giraffe hunting next week, but does he have any more rounds for his ZIRP gun?