In just one month VIX moved from the top of the channel to the bottom. Where will it be in a month? Feel free to use your Crystal Ball
back above 24, I think a huge jump back to 32+ is certainly possible over the next 2-3 months, maybe even sooner.
Today VIX is 9% below 10d MA "The TradingMarkets 5% Rule. If you only follow one market sentiment indicator, it should be the TradingMarkets 5% Rule. The 5% rule states - Do not buy stocks (or the market) anytime the VIX is 5% below its moving average. Why? Because since 1989, the S&P 500 cash market has "lost" money on a net basis 5 days following the times the VIX has been 5% below its 10 day ma. That's right, in spite of the S&P 500 rising over 300% since 1989, it's lost money 5 days following the VIX closing 5% or more below its 10 day ma. The TradingMarkets 5% Rule is also extremely powerful on the buy side. Since 1989, whenever the VIX has been 5% or more above its 10 day ma, the S&P 500 has achieved returns which are better than 2 1/2 to 1 compared to the average weekly returns of all weeks. What does this mean for you? It means the potential edge lies in buying the market and stocks when the VIX is at least 5% above its 10 day ma, and to lock in gains (and also not buy) when the VIX is 5% or more below its 10 day ma. " http://www.tradingmarkets.com/.site/AboutTM/general/tmtradingrules/07282005-44482.cfm
shortie - That's an excellent system Connors developed and I check it every day. I do think it's possible, though, that upward momentum in the market could cause it to give some false readings in the next week or two. I'm not saying it definitely <i>will</i> give false readings. I checked some charts after market close and some things are definitely overbought. I want to see what happens Monday and Tuesday before I do anything at this point.
jwcapital Why not just watch the 1400.00 area and see what happens like everyone else is doing? I mean why all the babble to come to the obvious conclusion? . Why complicate breakout trading? The real question is not what will happen but WHAT will you do when so and so happens. You gave us an example in your post of the dollar amount that COULD have been made when price did this or that. How come you failed to take the trade?
Heh. A good point but I think the idea with the VIX analysis is to help distinguish real breakouts from false breakouts. I just read "The Trader" column from the latest Barron's and I think it has as good and concise a summary of where we are right now as anything I've read: <i>This week, traders will be watching closely as the S&P 500 approaches its Feb. 1 high of 1395, a level at which they recently have taken profits. Breaching this threshold could encourage more buying, but sustained momentum will require a more persuasive catalyst than mere relief. "It appears as if the market has left the panic stage and is now in just a plain-vanilla bear market," says Mace Blicksilver, managing partner at Marblehead Partners. "It is going to be hard to trick investors into paying a plus-tick until some good news arrives, not just bad news that isn't terrible." Kevin Gardiner, HSBC's head of global equity strategy, likens this stretch to a marathon's "middle third" -- when the adrenaline of the start has receded, but with the relief of the finish still impossibly distant. He thinks write-downs tied to asset-backed securities peaked in 2007 and will wane this year, "but we still have ongoing liquidity fears to deal with, the U.S. economic downturn to gauge, and further falls in analysts' bottom-up forecasts to be published." With the equivalent of nearly 30% of the S&P's market value sitting in U.S. money-market mutual funds, an eventual return of risk appetite will lift stocks. When that happens is anyone's guess. "The only thing that will turn sentiment isn't the Fed or monetary policy, but a consensus developing that the economy is bottoming out," Paulsen says. "That really boils down to housing-activity levels stabilizing."</i>
I have looked at other CVR signals defined by Larry Connors. Turns out that out of 6 that I know of (anybody knows how many there are?) 2 actually flashed a Sell signal yesterday (V and VI). CVR III came close 9% vs 10% below 10d MA. And I and II could fire as soon as Monday (oversold condition for VIX is met, now we need to see some indication of VIX reversal). Presumably multiple CVR signals significantly strengthen each other, so we will likely (very likely?) get a down week.