The Lazarus Effect

[Tony Cherniawski]

Today we talk about the Rodney Dangerfields of the market. These are the indexes that just get no respect. I call them the Lazarus indexes. They are beyond the point of being beaten up. They have been left for dead among the majority of investors.

The first Lazarus index is the VIX. Most commentators have long ago quit badmouthing it. They have simply given up and walked away because they don't believe it will come back. That is a big mistake. The VIX has declined down to a long-term trendline and has found support there. But wait! The shape of the decline is that of a falling wedge, which is bullish. Not only that, but the VIX has emerged from its wedge and appears to be building a base. A breakout above 25.70 may be a good indication that this index has legs to run.

The second Lazarus index is the U.S. Dollar index. In the USD, the dollar has made an even more pronounced breakout and has pulled back in what many traders call a reversal pattern above the wedge. The USD gives even better parameters for a trade, since the pullback is well above its August low. Rather than waiting for the breakout above 79.50, one may simply use stops to protect one's position.

The surprising thing is that both of these indexes are considered inverse the domestic equities indexes. There are no big moves yet. But are they warning us about equities?

Good luck and good trading!

Tony

[Steven Vincent]

Thanks Tony. Yes I too have been eying the VIX and I agree that we are likely to see a run to at least 30, which would correspond, in my opinion, to a substantive pullback in equities and the beginning of a strong bull run in the US dollar. Currently (and this could change), I think that the dollar will enter a bull market along with equities and the VIX will come back down. But we'll cross that bridge when we get there. Right now, I think it's pretty clear that indications are strong for a dollar run and an equities selloff. I also think commodities and commodity stocks are set for a very strong decline.