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VIX Falling-Wedge Pattern

Take a look at this chart showing the daily closing values of the VIX index (click to enlarge):

The pattern that I have outlined in purple is called a “falling wedge“, and it is a bullish pattern. A bullish pattern for the VIX is a bearish pattern for the stock market.

I have also drawn a dotted line to show how the pattern has become “wedge-ier” during the past couple of weeks.

If the bounce in stocks that began Wednesday afternoon is able to continue, the VIX should eventually reach the lower purple line. If it fails to do so, then it will likely make a higher high on the next wave upward.

Note: I am short the S&P 500, and looking to get shorter soon.

This entry was posted on Wednesday, August 20th, 2008 at 9:06 pm and is filed under Investing. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

2 Responses to “VIX Falling-Wedge Pattern”

  1. Paul Says:
    August 21st, 2008 at 8:38 am

    Matt,

    Interesting theory. Since VIX can’t be bought and sold, is the pattern relavant or just coincidence?

  2. admin Says:
    August 21st, 2008 at 10:12 am

    Paul,

    Nobody knows the answer to that. A lot of analysts chart the VIX and take it seriously though.

    Matt

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