While I wait to see if the VIX might find a new floor in the 30-35 range, I notice that two veteran VIX aficionados, Bernie Schaeffer and Larry Connors, are talking about their current views on the VIX.
Starting with Schaeffer, in Examining the Technicals of the CBOE Market Volatility Index (VIX), the veteran options strategist outlines several of the factors that are influencing his recent thinking on the VIX. Republished from a mid-December subscriber note, Schaeffer’s thinking includes:
- Possible support at the ‘half high’ level of the VIX (50% of the November peak of 89.53)
- The importance of round numbers (a VIX of 50)
- Long-term moving averages (40 week and 80 week)
- Sector correlation (especially commodities vs. financials)
- VIX relative to SPX historical volatility (20 day HV)
David Penn, Editor in Chief at Connors’ TradingMarkets.com, weighed in earlier in the week with In Defense of the VIX, a response to a Bloomberg article by Jeff Kearns and Michael Tsang. Penn favors a relative VIX to an absolute VIX and cites the familiar Connors 5% rule, in which investors should be long the market when the VIX is 5% or more above its 10 day simple moving average and short when the VIX is 5% or more below the 10 day SMA. For those who are interested in learning more about the Connors approach, Short-Term Trading Strategies that Work has some interesting ideas and is a worthy successor to How Markets Really Work: A Quantitative Guide to Stock Market Behavior.