Thursday, October 16, 2008

VIX:VXV to 1.51

There is no such thing as a guaranteed bottom, but there is a high probability that we just confirmed a bottom...depending, of course, on the volume of hedge fund liquidations still to come

15 comments:

Jughead said...

May I ask how you arrived at your call?

diegoengel said...

yeah, I'm with jughead...what is your rational?

Bill Luby said...

A couple of factors, but prominent among them was the rate of change in the VIX:VXV ratio

gautsid said...

Jughead, click on the VIX:VXV tag at the bottom of the post to learn more.

This has been a great indicator since I've started following this blog.

Thanks for all the updates you do during these interesting times.

Jughead said...

Thanks gautsid and thanks for your reply Bill. I read your December post regarding the VIX:VXV ratio, I just wanted to know if 1.10 was the arbitrary cut off to go long before, why is 1.51 the magic number now? Wouldn't this ratio have been indicating a buy for quite a while now? Couldn't it still go significantly higher?

diegoengel said...

Gotcha....thanks for pointing out the link. I saw you posted a chart of that ratio. I'm not sure where to find that, is there anyway you could post a more recent version of the same chart?

Bill Luby said...

Regarding the VIX:VXV, as this indicator is still less than a year old (the VXV was launched last November), I continue to refine my thinking.

A level of 1.10 or above does generally provide a good entry point, but I believe that one or more confirmations can significantly improve usefulness the VIX:VXV ratio.

I hate to sound like a tease, but I am not going to share all of my thinking about the VIX:VXV ratio at this stage. (Some additional aspects of it will be in the newsletter and in the upcoming book.)

Cheers,

-Bill

Jughead said...

Fair enough, thanks for your reply Bill. I'll keep a look out for your upcoming book.

Jughead said...

Sorry, one more question regarding your bottom call Bill. When you say bottom do you mean "the" bottom, intra-day bottom or 30 day bottom etc.? In other words, is there a time frame for the predictive capability of the VIX:VXV ratio?

Thanks.

By the way, I notice the indices are bouncing off their lows of today. Maybe your call was prescient.

Bill Luby said...

Regarding timing, I meant intra-day, at least 1-2 weeks going forward, and the strong possibility of a longer-term bottom as well.

Jughead said...

Thanks for the clarification Bill.

Sharvy said...

In the VIX/VIV comment dated SEP 18, you say the VIX/VXV ratio was marking a good long entry point. Seems to me, that was a rather high bottom.

Tony said...

Sept 18th was also the day before expiration. Could be some kind of "seasonal" effect at work here.

Anonymous said...

Yes, I smell a canary, dead in a data mine. Can you explain the bottom you called in September versus the bottom you are calling now?

Bill Luby said...

I don't recall calling a bottom in September, though I did note on September 17-18 that some elements of a bottom were starting to line up.

Back then I suggested that we were at least several sessions away from a bottom and should wait until after options expiration before jumping to conclusions.

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