October Beating With a Bat Out of Hell ~ The Risk Averse Alert

Wednesday, September 26, 2012

October Beating With a Bat Out of Hell

More circumstantial evidence with precedent in the period leading up to the flash crash of May 6, 2010 that likewise presents a curious cyclical component suggesting a difficult October could be on tap...


One thing certain is VIX momentum (see bottom panel) turning positive consistently has coincided with weakness in the market's post-March '09 bottom, counter-trend rally period. Considering how low VIX presently is, and this in the face of a euro-zone very much appearing on the verge of imploding, how central banks already "all in" can possibly coax an even deeper degree of complacency among equity bulls is for trapped weak hands to prove at a moment when their apparent willingness and/or capacity to add to their stakes has long been conclusively revealed challenged (this being the story told by diminishing volume over the entire duration of the market's counter-trend rally off March '09 bottom).

Now, although the current state of the Volatility Index by no means assures the market is on course for a trip to heartbreak hotel, all things considered the odds appear anything but slim. Further raising prospect for a vicious October is the Fibonacci-based cyclical curiosity I have indicated above, each instance connecting market bottoms to subsequent volatility peaks. So, it looks like the month of October might bring flight to a bat out of hell...

Fast Money
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