$VIX 5EMA, 05/12/2014: 5EMA enters froth zone

2014年5月13日

It's been almost 4 months since the last time the VIX 5EMA entered the froth zone between 13 & 12.5. Today the 5EMA dropped from Friday's reading of 13.27 to 12.92. While past performance is no guarantee of future performance, each time in the last 17 months when the 5EMA has dropped down near 12.5, the market has put in a short term top of one degree or the other. Because the 5EMA is at 12.92 this indicates that we should get one more green day before there's a pause and perhaps a pull back. To me this just means that rather than chase the market it might be wiser to wait a couple of days and perhaps get a better entry price.

GL

P.S. This is just a 5EMA set up differently but you can use a regular chart of the VIX with a 5EMA to get the same information.

Edit Tuesday morning, 05/13/2014: Adding that back on 4/2, with the VIX 5EMA no where near the froth zone, the P/C ratio closed at .66. The following day, SPX pulled back 2pts to 1888.77. Over the next two sessions, SPX fell to 1845.04. On 4/9/ after a two-day rally, and again with the VIX 5EMA no where near the froth zone, the P/C ratio closed at .61. Over the next two days, SPX fell from 1872.18 down to 1815.69.

Fast forward to Monday, 05/12/2014 and we have the VIX 5EMA at 12.92 and clearly in the froth zone along with a P/C ratio at .64. This suggests to me that market participants have become near term over bullish and that the market is likely to have a cooling off period perhaps starting today, Tuesday, with the catalyst being the disappointing retail sales #'s. IMHO, of course.