Big Week – and Volatility Ahead – CIT Chapter 11?

by Jerry Furst – Sr Analyst  - Investors Education Network.com  

Last Week the  VIX closed over 30 spiking to an intraday high of over 31 on Friday with the DOW dropping 250 points and the S&P 500 dropping over 30 points and the S&P 500 breaking trend line support.

Looking at chart patterns is often called an art and a science. Eventually technical traders will build up a photographic memory of patterns and quickly recognize similarities.  I present to you an example.

The Daily charts of the Euro and the Weekly chart of the VIX  (S&P 500 Volatility Index) may give technical traders time to pause over the next two images I show.  

Chart Pattern Similarities - Euro and Vix - Sr Analyst - Jerry Furst - IEN - Click to Enlarge

Image 1 Above – On the Left – EURO – Daily Chart of March 18, 2009

The Past May Help Us Determine The FutureSimilar Patterns  - Note the Triangle – Failing Head and Shoulders and Trend Line Break which is practically identical to the current Weekly chart of the VIX as of October 30, 2009 – on the Right

Euro-USD Daily - October 30, 2009 - Shows Failed Head and Shoulder Pattern

Image 2 – Euro-USD Daily - October 30, 2009 – Shows the Failed Head and Shoulder completed – extending above and Beyond the Head and Shoulder Pattern. If this pattern is to be repeated on the VIX – Look Out Below!

Lots of News Scheduled as VIX Picks Up

Currency traders may want to consider shifting to tactics and strategies that work best in high volatility markets. Correlations between the equity markets and Forex may fluctuate if fundamentals get in the way.

Last weeks move up in the VIX and triple digit losses on the DOW are looming large over an extended equity market. (Click here to register and tune  into my webinar  on FX Street at 12 Noon Eastern (GMT -5)

Wow – What a Week Ahead Coming Up!

Monday: – Watch the Asian Markets into the US Open. us Data Includes Home Sales  - ISM and Construction Spending.

Tuesday: GBP: PMI , and US Consumer Confidence

Wednesday: – FOMC announcement - leading into Fridays NFP Employment Report

Thursday: BOE and ECB Central Bank Announcements – watch for signs of policy change statements. US Weekly Jobless claims and Fed Balance Sheet data. (click here to register and tune into my webinar on FX Street starting at 1:30pm Eastern (GMT -5)

Friday: NFP-Non Farm Payroll – US Trade and Consumer Credit Data

Traders Be Aware This Sunday – CIT Chapter 11?

CIT Group is reportedly ready to file a “prepackaged bankruptcy plan”. Sources indicate this may occur as early as this Sunday Nov 1. If Chapter 11 is filed – it would qualify as the 5^th largest bankruptcy filing ever ($71 Billion in Assets) in the US.

CNBC’s David Faber broke the news on Friday afternoon Oct 30, and he speculated that preferred shareholders are likely to be “wiped out”. These “preferred Shareholders include the US Taxpayer that had injected $2.3 Billion.

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Jerry Furst  is an active trader, educator, and Founder of Investors Education Network (IEN), He is a Mentor and Trading Coach to Select Clients  Click Here for a Free Self Evaluation Survey.

By Jerry Furst - Sr Analyst “1st on Forex”

Investors Education Network.com

Currencies at the Crossroads - S&P - VIX to Show the Way?

The correlations of the currency markets tied to the SP 500 seem to be holding quite well.

There seems to be a major media campaign scrutinizing the “Head and Shoulders”  patterns on the S&P 500. CNBC’s Mark Haines smirkly quizzed some technical analysts on Thursday asking, “so what happened to your head and shoulder pattern?”  -

Childish Patterns - Misunderstood

 John Authers writes in the The Financial Times on Friday that, “It is absurd to look at childish patterns when weighty issues afflict us. ”  Ahhhh…. Pitty the fundamental, long term,  buy and hold,  MBA  clinging to their PE Ratios to understand the valuations of their paper. If one thing is clear, mis statements and re-statements of sales, earnings, and future guidance (not to mention analysts recommendations) etc…. mean barely anything compared to….

The Charts Don’t Lie - Statistically Speaking

The point at which buyers and sellers agree are plotted on the charts for all to see… and these plot points form recurring patterns over time that have certain degrees of predictive accuracy - statistically speaking…

Head and Shoulders on the S&P 500 - correlated to the VIX

Daily Chart above on the S&P (click to enlarge) is showing a Inverse Head and Shoulders Pattern with a Neck Line of 956 - (At least that’s where I draw it) which coincides with the 200 period moving average. This denotes 200 SMA is a strong Support and Resistance zone - all on it’s own.

The 4 Hour Chart brings into focus the head and Shoulders of Great Debate

Lot’s of Technical Analysis naysayers (Haines,  Authers) are smug about the failure of the Head and Shoulder pattern to complete.  The issue I have with most of their commentary is that they are missing a key point regarding technical analysis - price will either “Bounce or Break” off of these neck lines. Once this “B or B” is confirmed, we have “potential” targets.

4 Hour S&P 500 chart (click to enlarge) Note that “the Bounce” off the neck line has targets of the top of the right shoulder (already exceeded) and now has a “double top” target that coincides with the “neck line”  of the “inverse Head and Shoulder of the Daily Chart.

So What…s Next???

Everyone’s talkin about these Head and Shoulder patterns…. As they will be triggering lots of technical trades in the next week or two.  So what can we use for correlation?

Enter the VIX - Volatility Index & Fibonacci

The Fear Index on the Weekly chart tapped a May 2006 support level just above 24 - which coincides with a 38.2 Fibonacci retracement - If the naysayers don’t like Head and Shoulder Patterns - I wonder what they say about Fibonaccis!

Weekly VIX Chart (Click to Enlarge) - Shows a strong support level - that if it starts to “Bounce Up” could be the “Heads Up” for the Head and Shoulder pattern to “Head Down” - Possibly making a Double Bottom to the March Lows - But…. Watch the VIx to Point the Way….

Happy Pippin…

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 US Dollar Stays Steady Despite Bad News

The US Trade Deficit jumped almost 6% and Jobless claims were larger than expected, However the US Dollar stayed stable and gave up little ground. The Fed Funds Futures Rates are pointing to a possible interest rate cut which may cut the Dollars recent gains.

Oil Testing Support at $100

OPEC is threatening production cuts while Hurricane Ike is threatening the Gulf of Mexico’s Oil facilities and shoreline. One would expect the US Dollar to drop with such news - However, this is further proof that the correlation between the US Dollar and Oil is strong.

FX Market Update Video for September 11th 2008 with Fundamental and Technical Analysis

Too Big To Fall - Too Big To Fail?

This morning MSNBC re-broadcast the terror of September 11th as the world was changed by a small group of overgrown adolescents that were in desperate need of finding some virgins….. Meanwhile - CNBC barely mentioned the anniversary - but seems to be delighting in the destruction of other financial firms. Seems as if too big to fail needs to be matched with the Bigger they are the harder they fall.

CNBC Vultures Pick on Lehman Brothers while the world looks on…

The image of a “pitbull” seems to fit the media these days, as certain shows seem to latch onto a story and refuse to let go until the life of the story is completely extinguished.  At CNBC - there seems to be a fixation with seeing Lehman Brothers extinguished - headed by Charlie Gasparino.  But almost the entire staff seems to be feeding a frenzy of fear to anyone that happens to tune in for more than 5 minutes. 

 Jerry Furst is an active trader, educator, and Founder of Investors Education Network (IEN), He is a Mentor and Trading Coach to Select Clients  Click Here for a Free Self Evaluation Survey.