Using The VIX

Discussion in 'Trading' started by stonedinvestor, Oct 4, 2007.

  1. Hi everyone. When folks ask me how i so accurately predicted the timing of the last two pull backs I pointed out to a strange anomaly that has been a tel for this market. A Rising market + A Rising Vix = Freefall.

    Normally the VIX recedes as fear recedes and markets elevate... so what is happening now? Well The VIX is NOT Rising Yet! But it's not going DOWN either! It's stable which is our yellow flag right now.

    The VIX, also known as the market’s “fear gauge,” normally falls when the major averages move higher. However, over the past week, the Dow Jones Industrial Average ($INDU) has performed exceptionally well, but the volatility index hasn't’t budged. The lack of movement in the VIX seems to reflect the view that not all of the problems that caused market volatility this summer have gone away. It is perhaps sending a warning of more trouble ahead.

    The CBOE Volatility Index is a forward-looking indicator. It reflects the expected volatility currently priced into S&P 500 Index ($SPX) options.

    The VIX started the year near 12 and began the month of June at roughly 13. However, by mid-July, when the Dow was climbing to new all-time highs above 14,000, the volatility index had already begun moving higher. It was, in fact, sending a warning signal to investors that, despite a fresh peak in the Dow, higher levels of volatility were forthcoming!!!

    Did You Listen To the VIX last time?

    The volatility index was near 16 when the stock market started to falter in mid-July, and 3.5 points above its early June lows. Then, as the Dow fell from its high and stocks suffered the one-month setback, the VIX continued its ascent until hitting 37.5 on August 16, or its highest levels since October 2002.

    Just as in mid-July, when the Dow was making its first climb above 14,000, the VIX might once again be sending out a warning signal. If we put on fresh highs and the VIX begins to climb instead of retreat it will be the THIRD signal sent and the first two were DEAD ON. ~ stoney