Investor Concern Replacing Complacency – Reversal Pattern On The Volatility Chart

By | June 2, 2019

The iPath Short-Term Futures ETN (VXX) tracks an index with exposure to futures contracts on the CBOE Volatility Index with average 1-month maturity. It resets daily so traders should use it as a short term and not a long term trading vehicle.

That said, a bullish morningstar reversal pattern has developed on the VXX weekly chart. The pattern formed just above the $26 level which correlates with the 15 level on the Volatility Index (VIX). Monitoring how this pattern plays out on the weekly time frame can provide context to analyzing the daily time frame.

A morningstar, as regular readers know, is a bullish three-day reversal candle formation. It consists of a large range down-day candle, followed by a narrow opening and closing range doji type candle, and completed by a large up-day candle. It suggests a transition in trader sentiment from bearishness, to uncertainty, to bullishness. The morningstar has been rated as a reliable candle pattern.

This morningstar comes after a period of trader complacency but that attitude may be about to change. A corroborating technical development is the bullish crossover in the MacD. It reflects a turn in upside price momentum. Upside volume has also been increasing over the last month.

The VXX needs to continue higher from here to confirm the legitimacy of the morningstar pattern, and any potential reversal in sentiment. But, concern may be replacing complacency.

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