Last weekend it looked like there was going to be a decent upside reversal based on two things. First the VIX had rallied to the top of its longer term downward channel (point A) and secondly the S&P 500 had fallen to a key support area at 2085 which coincided with its 200 Day Moving Average (green line) and lower part of its downward channel (point B).
Meanwhile one pattern to watch for in the VIX is an Inverse Head and Shoulders pattern. This pattern will remain in play as long as the VIX holds support above the 12 level. The 2nd Shoulder may still take a few more weeks to complete which would allow for the S&P 500 to make a new all time high above the 2200 level which coincides with the upper Bollinger Band (point C).
Finally if the Inverse Head and Shoulders pattern does pan out then the VIX would break out strongly to the upside as we move into 2017. This would have an adverse affect on the S&P 500 as they usually move in opposite directions.
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