Here’s an upclose and personal view of the iPath S&P 500 VIX ST Futures ETN (NYSE: VXX) that shows how the “fear index” derivative may be setting up for a nice bullish swing trade, an indication that next week’s market may be walking further down the bearish path it is traveling down today. (The VXX, which offers inverse exposure to the broad S&P 500 basket of stocks, basically goes up when the equity market goes down, and vice-versa of course.)

With the VXX sitting at $15.40 about a half hour before the sound of Friday’s closing bell, it looks to end the day in a doji, the second in a row for the ETN. Today’s doji has broken below $15.48, which has served as support going all the way back to last August. It is the fourth day in a row for this support line to be breached, and in the process a new level of support has emerged at $14.65. Going below that at this point would occur only if the market was seeing many of its key indices hitting new all-time highs.

If Monday ends in another green PayDayCycle bar, it suggests a bullish reversal of the 5-day bearish PayDayCycle that ended today. And, with that $14.65 support line so close by, it would provide a strong set-up for a bullish entry, with a solid risk-to-reward ratio. That’s because there would be a lot more room for VXX to run up as opposed to how far it could run down.

Speaking of the upside, current resistance is found at $17.50 (second gold horizontal bar from top) with the next level residing at $19.37. While that number seems a ways out of reach, keep in mind that the VXX, being a volatility-based derivative, could spike sharply higher in the event that market sentiment morphs into a strong bearish commitment.

(Note: The VXX tracks the S&P 500 VIX Short-Term Futures Index Total Return, and reflects the implied volatility of the S&P 500 Index at various points along the volatility forward curve.)

The current Over/Under is 17.50/14.65 Any break above the bullish over would indicate that investors are ready to swap out equities for less risky vehicles such as cash, bonds or precious metals.

VXX PayDayCycle Status right now sits at neutral, following the end of a 5-day bearish PayDaycycle. Again, today’s green doji could indicate that a bullish reversal could be close at hand. A green bar on Monday would confirm that reversal.

PayDayCycles are 4-8 day trends in stocks that help people swing trade. To learn more about PayDayCycles make sure to grab the free Swing Trading Class on the right sidebar.

The MACD resides so close to the zero line that it may as well be merged with it. However, it is there because recent momentum has favored the bears, bringing the bars down from the bullish side of the momentum indicator.

Bottom line: A green PayDayCycle bar on Monday, unless it is a doji, would offer a good bullish swing trade opportunity, especially in light of the current risk-to-reward on the trade. Remember that a bullish VXX trade means the bias is towards a bearish equity market.