During formation of wave 3 of (c) we see the Volatility Index improving on the best levels it reached during formation of wave 1 of (c). This is indicated in green markup.
During current formation of wave 4 of (c) there's a good chance the Volatility Index will remain below its peak reading set when wave (b) bottomed early-June 2012. Wave (b) is the middle wave of an a-b-c "zig-zag" rising from early-October 2011 bottom. This "zig-zag" is the second to form off March '09 bottom, thus making the Elliott corrective wave off that bottom a "double zig-zag," a complex Elliott corrective wave form.
Evidence suggesting wave 4 of (c), indeed, presently is forming can be seen via the Volatility Index's RSI (top panel) and MACD (bottom). These technical measures suggest the market's volatility (reflecting on options premium pricing, which VIX measures) is on the verge of increasing. As wave 4 of (c) projects the market's decline, we find cause here to suspect its setback could be imminent.
Quite the same analysis applied to the Volatility Index likewise is presented via the CBOE Put/Call ratio. Again, the market's imminent decline similarly is being signaled via the put/call ratio's RSI and MACD.
We learned today that, the American Association of Individual Investor sentiment survey saw bullishness fall from 41.8% last week to 28.4% this week. This suggests any imminent, upcoming market decline probably will not be long lived. Of course, this circumstance is fitting our present outlook, wherein wave a of 4 of (c) might be seen presently unfolding, while wave b of 4 of (c) [higher] upcoming could carry the S&P 500 nominally above its wave 3 of (c) peak (set at the open on Wednesday, February 20th).
* * * * *© The Risk Averse Alert — Advocating a patient, disciplined approach to stock market investing. Overriding objective is limiting financial risk. Minimizing investment capital loss is a priority.
Analysis centers on the stock market's path of least resistance. Long-term, this drives a simple strategy for safely investing a 401(k) for maximum profit. Intermediate-term, investing with stock index tracking-ETFs (both their long and short varieties) is advanced. Short-term, stock index options occasionally offer extraordinary profit opportunities when the stock market is moving along its projected path.
Nothing is set in stone. Nor is the stock market's path of least resistance always known. More often than not, there are no stock index option positions recommended.
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