Chart of the Day – CBOE S&P500 Volatility Index (VIX Index) These charts are the daily, 203 minute (1/2 day) and the 68 minute (dividing the day into 6 equal segments). We will use Volatility Based Technical Analysis (VBTA) to gain insight into the Volatility Index itself. We will then use multi time framed analysis to project high probability levels of future importance.
- To get a look at volatility, we will use multi time framed support/resistance. This is simply finding convergence of levels from more than one time frame. I have shaded daily support using dark blue and red, and then replicated these exact same areas on the daily chart. I have lined up the prices on both charts to make the concept of multi time framed support easier to see.
- The projected levels of support (blue) can be seen overlapping mid-March to early-April near the 16 level. The projected levels of resistance (red) can be seen overlapping early-May through present near the 25 level.
- Under the current news risk environment, it is wise to plan for extremes, both good and bad. So we will look at the downside first. Overlapping, multi time framed support can be found near the 14 level on the daily and the 203 minute charts.
- On the upside, there is still considerable overlapping near the 25 level. There isn’t a multi time framed level on the 203 minute chart; however the upper N Band zone (immediate resistance) is coming down to this level (25.70). On the shortest time frame (right chart), the upper N Band zone and both projected levels of resistance (shaded light red) are stacked. Over these levels, we would need to look to the highest time zone (daily) and watch for the intraday levels to line up with the Upper N Band zone between 29.97-31.78.
- You can also use multi time framed directional signals as well to gain additional insight. Recently, a directional signal (E – Exit Short) was indicated on both intraday time frames (noted by a black arrow). Since this is with the trend (middle chart) it still indicates 1-3 more periods of potential upside (0.5 – 1.5 days).
- To summarize, volatility is near multi time framed resistance (24.60-25.70). And, given the news risk environment we’re in, we have levels of resistance above here and support below.
- This is just one way of demonstrating how you could incorporate VBTA into your analysis: to compliment your directional views with accurate volatility forecasts, and to have levels known in advance to develop strategy(ies) around.
Our mantra is “money is made at the extremes.” With known tendencies that have been quantitatively demonstrated across several markets and time frames, it is easier to take such opportunities. You can view the statistical evidence for MetaSwing’s components here: http://metaswing.com/site/files/MetaSwing_Components_Catalog.pdf
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