With such lousy numbers we have another breakdown in the VIX. That’s the strangest thing I’ve ever seen. However, the truth of the matter is a plummeting VIX doesn’t necessarily mean a market top right now, but eventually it will. In 2006-07 it took 7-9 months. So we are looking at the FTSE, the VIX and also the SPX. It has a very interesting calculation. What was the range of the bear market? From 1576-666 that’s about 910 points, right? Okay, so then we take 1.618*910 we get 1472. What was the high in September? It was 1474, which is close enough. That’s why the SPX topped where it did. Now it has violated that relationship and it’s done it by more than a few points. So my take on things is everyday this goes up, stays higher and generally leaves 1472-4 in the rear view mirror is just one more nail in the coffin to the old bear market. What does that say to the experts who let their opinions be driven by the Fed? Well, they aren’t traders and we only care about what’s on the chart. People have been scoffing at this rally for nearly four years, but that doesn’t change the fact we have any number of great calculations at the 2009 bottom. We are being tested again and every day the market doesn’t drop is another bit of new information that helps us understand that 2009 is a generational bottom. More and more people are starting to get on board with that view, which means we are likely getting late if the VIX wasn’t already telling us that.
They’ve come to the conclusion that after years of the market not dropping it starts to become obvious. If it’s starting to become obvious, we could be close to what the Elliotticians call the point of recognition, which is about halfway through the move. That doesn’t mean we can’t get a real shake out where the nuts and coconuts fall out. Shorter shakeouts could happen at any time. Given where we are in the SPX and the FTSE we could be really close to one of those. We’ll be judging this market really careful once it gets a little higher at resistance, which should happen this week.
The Dow is also sitting in a potential wedge formation that wouldn’t have much further to go. It probably has another 600 points to go before it hits serious Fibonacci resistance. That would mean we can still see a new all-time high right in this sequence. None of this surprises us here at Lucas Wave. This is the kind of pattern that can get there in three days or three months. Three months is more likely. What the Dow is telling us is we could see an important high sooner as opposed to later. January has worked out better than I thought it would. If this wedge is real, then it could be telling us we could be in for a rough ride in the new legislative season in Washington.