The VXX is forming a higher base. This is a very rare formation and it gives us some very valuable information about the market.
How rare is it? Looking at a longer term chart we we see this pattern hasn't occurred since the spring of 2012. That led a 10% pullback in the S&P 500.
This leads us to market sentiment via the put call ratio. A clear trend has developed of increasingly bullish sentiment throughout 2013. That trend has now capitulated and this week it reversed. This is telling us to sell rallies short term and prepare for a wipe out of the excessive bulls.
All the information we have tells us there is a great chance volatility will persist and increase before heading lower. If we see a few day bounce in the market and a dip in volatility, it's likely an opportunity to get long vol and position for market downside. Have a good weekend!
