The VIX Wedge

If the market is building a base from which to move higher (as opposed to moving lower), one chart worth considering in the Volatility Index. The VIX has had a rising lower trend that has been in place for a year. My feeling is that this trend line needs to be broken for the market to recover.

The trend line forms, in my opinion, a kind of bearish wedge with the 30% line (in this case, the bearish wedge for the VIX is good for the market). Although the 30 line is broken during brief periods of extreme fear and market uncertainty (it was broken 3 times over the last year for very short durations), it really does act as a resistance line for the purpose of technical analysis.

This is a trend line that will be broken (they always are). The question is when? Given that this wedge is giving the index less and less room to maneuver before hitting the 30-resistance line or the 22-support line, I expect the break to happen soon and that there will be some follow through. This means to me that a very good week for the market is coming.

My thesis continues to be contrarian. Sooner or later the "write-downs" will become write-ups" and the market will stop going down on bad news. I think we are almost there (certainly within the next 6-weeks). The negativity is prevalent with bloggers, money managers, and politicians. That usually means a bottom is in.