TVIX: Watch for the gap fill today.

Since the broader markets are likely in a 5th wave according to my theory that wedges are 3rds or Cs, it is more than possible that TVIX will create a lower low than $2.50 even while the DJIA fails to create a higher high (failed 5th).  But if this is to happen, they have to keep drawing in new money on the way down and then only reverse upwards when everyone who is going to get taken actually gets taken.

On way of doing this is the gap fill.  We are now well below the support line that I warned about in this post.  While I do not think it will be the case, the markets could treat that breach as a neckline breakdown of a large H+S.  If this is the case then much lower lows are coming for TVIX.  Again, I think the case is weak at present because the right shoulder is not solid but rather contains two peaks.  Still, the break down below that pink line happened with a gap and that means the market knows about that line and that breaking below it was something significant.  So I stick by my prior post that most people should use it as a buy-sell line.


In any case, a typical thing to see here would be a gap fill as shown by the red line up.  That would clearly be an a-b-c move at this point so if you see that happen and if you see it fail to break out of the top parallel line as shown then don't be surprised to see more downside to TVIX.

A break above that pink line would begin to suggest that the northing was done for the markets and that a new downward trend would be taking hold

I held TVIX overnight but will sell it if that gap fill occurs and it can't break out. 

Longer term, we are now in a state of potential supervolatility for the markets.  I'm not referring to the VIX here because that is only the level of volatility that the market perceives itself to be in. I'm referring real volatility as defined by the following things:

• Longs took a beating into Oct 15th while shorts got excited.
• Shorts took a beating into today while longs pounded their chests and forgot about the bad feeling that they had in their stomachs just a few weeks ago.
• In other words, both sides have gotten whip sawed of late and nobody is really sure where the next move will be.  The market likes this kind of uncertainty near the big turns because it stops everyone from making massively leveraged bets on a sure thing.
• The fed has officially confirmed that it will stop printing money from thin air in order to buoy asset prices.  Re-shoveling capital from maturing assets cannot pump a Ponzi and we know by definition that there is no such thing as a Ponzi plateau.  You have to continue to add new value in at the base of the pyramid (new suckers) or it will eventually collapse. But  even if new suckers wanted to participate, will they have access to credit in order to do so?  It's like buying a house.  The price that many people will pay is only limited to what the banks will loan them.  But if the treasury market is becoming illiquid, how much longer until the debt market experiences the same?  My models suggest that we are at peak credit right now.
• People now expect rates to stay low for a long time because the fed says it will not change the fed funds rate.  But the fed does not control long term interest rates and at some point the fed funds rate, being applicable only to un-collateralized overnight loans between banks, will lose its meaning as the 10 year begins to move up rapidly.  At some point the fed will have to raise the rates not because they want to but in order to maintain the illusion that they control ALL interest rates.  Alan Greenspan did explain to people on many occasions like this one that this is simply not within the fed's control.  Still, most people still believe that "the fed controls the interest rates".  This misunderstanding is going to hurt a lot of people at some point.
• Margin debt is at an extreme as is positive sentiment toward stocks.
• Yellen is a new fed chief and she needs to be tested.  Her 6 month honeymoon period is now over.  Since she is now apparently more worried about the common people killing her in the street than she is about corporations and the welfare of the already rich, the market needs to take its ball and go home to see what she will do to save them (if anything)

If you add all of the above up, it's like a fly landing on the lead horse can set off a stampede (or be ignored).  The important thing to keep in mind right now is that the system is full of instability and at the end of the day, markets do not like uncertainty.  Having the fed basically leave the game and go to the sidelines has to be viewed as increasing the uncertainty for market longs.