Notes for Thursday… VIX vs Dow vs FAS/FAZ

Looking for a “Thunder Thursday.”  But this time, I’ll be trying for a thunder from the right.

Keeping this one simple…

Despite Wednesday’s tape translating into a “flag” pattern off of Tuesday’s drop, I think it will be a little difficult for Bears to push this one lower than Tuesday’s lows.  Therefore, I’m waiting for this setup:

• Market breaks out of wedge to upside + VIX breaks down and falls below that multi-day channel.  I’ve noted some strange action happening in the VIX everytime it test the bottom of the channel.
• I haven’t made up my mind how to play this bullish intraday setup.  I’d short FAZ, but lately it has no shares to short.  So, I’ll take FAS above 6, since there’s a pretty large gap above.
• I’m a little afraid of those solid support/resistance lines (see the green arrows), and I expect the market to reverse there if it does attempt to fill the gap.

And of course, there is plan B.  Flip the charts, and play FAZ.  That means, I’ll be looking for VIX to move back towards the top of the channel, while Dow/SPX breaks below channel.  HOWEVER, if VIX reverses back down, ie, can’t breakout back to the 50-51 level, then a squeeze at the close is likely.  So, if we get the same tape we got Wednesday, I’ll just wait for the close before doing anything.

Right now my modem is down, so I’m actually connected to the internet by using my BlackBerry as a modem.  It’s such a cool trick.  Geeks rule the world!