Thanks again to JungleGirl for giving us the heads-up on the Vix. Her last warning was way back on June 25th. (Make sure to read that post if you need to learn about the Vix and Bollinger Bands.)
How did that signal work out? The SPX continued to rally, and the Vix actually closed below its lower Bollinger Band for the next two days in row. So, if you went short at the open on June 26th at 918.90, you had to suffer a modest draw-down to 931.92 on July 1st before the market rolled over and plunged to a low of 869.32 on July 8th. See the blue arrow at the left on this SPX daily chart (click to enlarge):
I have also added a couple more lines of code to do the opposite: paint the bars purple when the Vix closes above its upper Bollinger Band. Those events mark excesses of fear, and as you can see at the four purple arrows, are excellent buy-signals.
In the upper-right corner you can see the blue candlestick (and blue arrow) marking today’s Vix extreme. So, while the market may continue upward a bit more this week, the Vix is telling us that everybody has rushed to one side of the boat to look at the cute dolphins, and the boat is about to flip over crushing said dolphins under thousands of pounds of fat, blubbery tourist flesh.
JG, this is what paul saw too
http://paul.kedrosky.com/archives/2010/01/stand_back_from.html
100 points would have been awesome!
What type of bear are you?
http://www.ritholtz.com/blog/2010/01/what-type-of-bear-are-you/
Asian markets are down. Chinese market open and down. Futures red.
Matt, JG,
Nice VIX observation and write-up. I hope I’m not one of those touristers.
I had to leave early to get a blood test for yearly physical. The main charts I use on the iPhone is StockCharts. Checking the market, I saw that red candle and they had to give ME blood. Then I checked another App (may have been CNBC) and all was okay. But I really didn’t know until I got back home.
There may be a pull back, but too soon for a reversal or another bear. I would think it would need to “work a top” before a flop unless there was a global catalyst?
K,
Is there any such thing as an inverse bear? Is that two negatives? Do they cancel each other out?
This is getting complicated.
Not K, but yes, like shorting a short ETF.
I too think this rally has more room to roam, cash is seeking a haven in anything but…well…cash. Not sure what it will take to turn the tide, but creeping oil and $3.00+ gas has the market thinking hard right now.
Yeah, shorting a short ETF. Seems sacrilegus.
As long as the extremes keep coming I’m happy. I would like to see a bit more volatility though. Some days it takes forever for a trade to play out. Snailsville. But beggers can’t be choosy – I’ll take anything.
Here’s how my 5min SPY chart ended up with its trendlines:
Ignore the yellow line, that’s yesterday’s close.
http://tinypic.com/m/71n21l/4
George,
oops
I reported you for offensive material
S&P futures only down 1.40 after big alcoa miss. I’m sure it will be up 4 by the time I check them in the morning….
good night all.
I hear you George. But, the $VIX is telling us that there isn’t that much volatility, so you’ll have to wait longer to make your scalps. A good time for a novice like me to learn…s-l-o-w-e-r….