For weeks now, I have contended that the $VIX would need to break the 12 level as confirmation that US equities are going meaningfully and sustainably higher. The $VIX has not broken through this “wall of support” despite tagging the 12 to 13 level numerous times since that original video in early September. In fact, as we can see from this weekly chart the $VIX is actually threatening to break through resistance at the 14.64 level. See figure 1.

WEEKLY

Figure 1. $VIX/ weekly

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The black dots on the price bars are key pivot points, which are the best areas of support and resistance. Breaks above resistance are suggestive of falling equity prices. Conversely, breaks below support in the $VIX are typically associated with higher equity prices. As stated, the key level on the $VIX to watch is at 14.64. A weekly close above this level and equity prices are headed lower. Past and recent breaks above resistance are shown on the chart.

Figure 2 is a weekly chart of the SP500 with an indicator that attempts to measure the current level of the $VIX relative to past key pivot points in the $VIX and trend lines formed by those pivot points. The indicator is rolling over. Past and recent crosses in the indicator are noted with the failure that occurred in quarter 1, 2013.

Figure 2. $VIX/ weekly

DAILY

Figure 3 is a daily chart of the SPY with the $VIX data hidden. The red and gold pivot points are formed when the price of the SPY pivots during extremes in the $VIX. As an example, see the pivot inside the blue box. At this time, the $VIX was extreme relative to the past 40 days (our look back period); during the extremes in the $VIX buyers surfaced (as expected), and price of the SPY pivoted higher. Thus forming the pivot. This becomes support. Currently price is below this pivot, which means that support becomes resistance. In essence with price below old support, the trend has likely turned lower.

Figure 3. $VIX/ daily

In summary, the rally is running out of steam. The $VIX should have broken below a level of 12 to confirm a sustainable price move. Instead, the $VIX is looking to close above resistance levels, which in all likelihood would be the end of this rally.