Have you looked at the trending behaviors of the VIX and the DVOL lately?

tenteddies

Have you looked at the trending behaviors of the VIX and the DVOL lately?  

Normally, they trend in fairly close, mutual agreement with each other ... but that all changed this past Summer when they started behaving differently.

Overview:  Normally, you would expect their behaviors to reinforce each other.   For example, if the VIX (often referred to as the Fear Index) were to move up, then that would indicate that fear levels were increasing and the market's normal response to that would be to move lower.   And when that happens, the normal and expected behavior would be for the (DVOL) Down Volume to rise along with the VIX.

That's what typically happens.

However, after June of this year, that relationship changed as seen below.  Take a look at the current yellow lines that start in mid-June until yesterday.   

On the VIX, the yellow line moved down and has made a lower/low.

However, the yellow line for the DVOL has done the opposite ... it has moved up with DVOL oscillations above and below the trend line.

This disparity is a Negative Divergence.  Negative Divergences typically rebalance when the market pulls back and equilibrium is once again re-established.   That has not happened yet.

Why hasn't it happened?   Our research shows that inflowing Liquidity levels and its trend is the trump card, and that Negative Divergences never act out until after inflowing Liquidity falls and starts to trend down.

And that explains why this Negative Divergence has not kicked in yet.  Our data shows that inflowing Liquidity levels have been trending up and increasing since a low that was made at the end of June.  

trueself

coolgal

good finding. Thanks!