One week ago, when markets were breaking down and the gurus were forecasting that a crash was inevitable, we published an article titled "The Market Will Not Move 50% Lower." In fact, we looked at our leading indicators and concluded that volatility indexes seem to suggest a short-term bounce in markets is underway.

In this short post, we share an update of where volatility indexes stand and, in doing so, share a few quotes and charts from our most recent market analysis shared with premium members in our Trade Alerts service.

In our Trade Alerts service, we offer a few proprietary methods. One is an algorithm that flashes highly accurate signals for trading the S&P 500, another one is a method to read volatility indexes to forecast the direction of markets (short- to medium-term oriented).

This is what we observed in this weekend’s market analysis:

“The VIX has a very similar setup to the Nasdaq volatility index. We like the double top pattern a lot. Also, remember that our conviction of a bottom formation in markets primarily came from the VIX topping right below 35 points on Sept. 28, as shown by the green arrow on the next chart. It worked like clockwork.”

Based on our volatility index analysis we concluded the following:

• Volatility indexes, once again, guided us very well in reading markets, despite the very aggressive bottoming formation in markets that took one full month to complete.
• We like the setups in volatility indexes a lot, and they appear to confirm that a bottom in markets is set.
• Because of this, we expect markets to resolve higher.

It becomes really interesting when we look at our tradeable S&P 500 chart, which is also a key component of our Trade Alerts weekend alerts. The 3x bullish S&P 500 ETF chart is in the process of to confirming a huge reversal. Below is the short-term SPXL chart, which makes the point.

This is a quote from our weekend analysis:

"The recent lows seem solid. This implies that we can start adding to the first allocation that we initiated on Tuesday. Ideally, we add two more allocations next week, on the dips, to scale up our allocation in a controlled way. We will try to buy the dip based on the levels that we retrieve from our algorithm (the same price points we release in our ‘daily Algo Alert’)."

If we combine our volatility index readings with the information we retrieve from our algorithm, we conclude that there is a really ‘juicy’ opportunity brewing in markets, with a high probability of a bullish impulse that may materialize in the short-term. Because this is happening at critical support on the daily chart, we believe that markets will resolve higher and that an end-of-year rally is very likely.

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