8/21/21: After a more detailed review, it certainly looks like conditions are favorable for a new leg down to materialize in the coming sessions next week. Likely a topping process for a pivot top- not a terminal one: that should come later on this year.
Original post-
Note- 'turn up signal [ratio]' in volatility = [market declines begin nearby]
EOD: Strange as it may seem- there was a weekly 'turn up signal' in volatility at the close that remained pretty much in place the whole day. This is on the WEEKLY degree chart. The daily obviously was a different ratio due to the bounce. How do we resolve this? As the character says "just the facts Ma'm" -
Weekly signals carry more weight as long as they meet surrounding criteria. This signal does. Since it indicates a 'turn up' on volatility, prices in ES may go wherever they wish but upside near-term is probably limited. There will be a continuing watch daily and weekly on turn ratio signals in both directions until a resolution appears.
3:45pm EST: If current vector ratio holds through to the close, the setup will be- a continuous 4-week negative breadth signal line [below zero] on the weekly NYAD MACD chart together with a favorable 'turn up ratio' [in volatility] on the weekly vector itself. This will take more time to resolve one way or the other.
Original post-
Nice expected bounce right at the target zone HOWEVER there could be a weekly turn signal [breadth could be heading down again] due to conditions developing on the NYAD MACD - currently the signal line is below zero and has been for a few weeks. The previous posts on weekly turn up signals on volatility were premature at a higher degree though they did have an impact causing a market near-term smallish decline [mid July '21] and more importantly- several technical underpinnings also took a serious hit at that time*. Notice in the chart, the weekly turn signal [down market potential] at ES price, if it materializes by the close today, could be aligned with the daily signal that printed on 8/17/21. A gap was created in cash just above and around those two [daily degree] turn signals.
* daily summation index 50ma dropped -6% and crossed below 200ma on 7/20-7/21. Since then it has continued in a straight-ish diagonal line down to -29% currently, That total drop is from it's previous lower high on 6/24. Not a great signal for a near term positive market to continue without some correction along the way. The weekly has not crossed over downward yet but it appears to be rolling over.
The near-term bottom in ES could certainly be established but the door may be open for a retest of some kind before a confirmed up move in the market happens. The closing ratios will provide a better clue. There is a gap at [ES cash] price zone 4454 - 4470 that may need to fill but it is not required for a turn-up signal in volatility to print at the daily level.
Technical Memo Note: For the majority of the week, volatility derivative VXX was not at max performance and then on Thurs. 8/19 it was overbought compared with standard volatility measures at a ratio of 5:1- anything above 1:1 often pegs the market at that location due to exhaustion which is why it may well hold near-term. No guarantees however. The market is in stretched ground. A new leg-down, if it materializes, could certainly attack it.
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.and this you might expect to see when a weekly 'turn up signal' in volatility prints albeit after a strong daily bounce- [cheers!]. Hint: a contrarian signal perhaps? :
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