A morning star is a bullish candlestick reversal pattern made up of three candlesticks. The pattern follows a decline forming a doji then followed by a bullish candlestick.

The VIX is an important barometer of investor sentiment and market volatility and is often referred to as the “investor fear gauge”. It is used to determine the market direction for it has an inverse relationship to the market. As the VIX increases the market goes down and decreases when the market moves up. (Refer to the post on Volatility Index)

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Looking at the VIX chart, a Morning Star Doji was found and the SMA on MACD Histogram has crossed and it is moving up. The William %R indicator shows an upward movement making it a very strong possibility that the VIX is going up.

This means that the fear is increasing and couples with the two Dow Jones components, (Alcoa Inc and General Electric) that have reported disappointing results, causing the Dow to slide 256 points on Friday. Could this be an indication to a weaker U.S. economy? Can the investors expect more disappointing earnings on the following weeks to come? We will be looking at JNJ, KO and IBM next week.

Those who buy straight puts have to be very aware of the IV of the underlying stock for it can be very high fueled by the negative market sentiment and you’ll be overpaying for the more expensive options.

“The price pattern reminds you that every movement of importance is but a repetition of similar price movements, that just as soon as you can familiarize yourself with the actions of the past, you will be able to anticipate and act correctly and profitably upon forthcoming movements” - Jesse Livermore

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