A relief rally doesn’t seem ‘required’ after such a short sell-off but short-term metrics point to a bounce in the immediate future. One of my favorite indicators, the VXV/VIX Ratio, is well into buying territory – so much so (below its lower Bollinger Band) that it will probably require a positive divergence prior to a tradable low. Beware any rally this week as it may be a bull trap!
The CBOE Volatility index (VIX) had its best week since January with a gain of 3.56 points to close at 17.03. Friday’s close left an engulfing bullish candlestick on the daily chart and constitutes a breakout from important resistance at 16.40 (see my May 9 Commentary) which is a level that has been tested on numerous occasions in the past and held. A cycle low is due at the end of this week and is likely to mark the end of the relief rally.
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