BofA Warns: VIX Spells Trouble

Tyler Durden's picture

Markets are showing increased signs of investor anxiety, warns BofA's Macneil Curry. The Friday breakout in the VIX Index says that this anxiety will likely persist into next week. Indeed, Curry adds, the VIX has based from its highest levels in over a year suggesting that investors are more susceptible to bad news and defensive behavior than at any time in the past 12 months. Several markets look particularly susceptible to this change in sentiment.

From an equity perspective, the Nikkei stands out. Its breakdown from 5 week Flag support says its medium term downtrend has resumed, targeting last summer’s range lows between 12,400/13,400.

In FX, the Japanese ¥ is particularly well placed to benefit. The bearish weekly reversal in $/¥ and close through 101.40 says it is resuming its medium term downtrend for 99.06 and eventually the 92/94 area. Finally, regardless of the larger outlook for risk assets stay bearish CNH.

Via BofAML's Macneil Curry,

Chart of the week: VIX BASE POINTS TO SENTIMENT SHIFT

The VIX broke sharply higher on Friday, completing a month long base/Double Bottom. This formation targets the 20 area and says that investor anxiety will persist in the week ahead. More troubling is that this base developed from above the 14m range lows at 12/13. It warns that sentiment is undergoing a regime shift to higher levels of uncertainty and that the range highs at 21/22 are vulnerable. BEWARE.

The Nikkei seems set to suffer

In an environment of heightened investor anxiety, the Nikkei is particularly vulnerable. The breakdown through 5wk Bear Flag support (14,657) says its medium term bear trend has resumed. Target the Summer’13 lows of 13,388/12,415 before renewed basing.

$/¥ resumes its downtrend

The bearish weekly reversal and close below 101.40 says that $/¥ has resumed its medium term downtrend. The initial target is 99.06 (measured move), but eventually we target 93.79/92.57 (Jun & Apr’13 lows) before greater signs of basing emerge.

$/CNH is in a long term uptrend.

Regardless of the risk environment, evidence says that one most stay bullish $/CNH. The impulsive gains from the Jan-14 low and break of 20m trendline resistance says the long term trend has turned. While momentum warns of a near term pullback, CNH strength should not exceed the pivotal 200d (now 6.0945). Bigger picture, we target 6.2692/6.2510 and potentially beyond.