Tuesday, February 17, 2009

VIX:VXV Ratio Signals a Buy

The VIX:VXV ratio, which has been decidedly neutral for more than two months, is up over 1.08 (was at 1.10 earlier), signaling a buy.

Officially, this ratio does not generate a buy or sell signal until the end of the day, but on days like today, it is always nice to get an early warning signal.

If all hell does not break lose, I will revisit the VIX:VXV ratio just before the close and update the signal, if any.

11 comments:

Anonymous said...

i learned about VIX:VXV from your site. usually its selling signal is just little early. its buying signal is a way too early. i guess that's the characteristic of the bear market. as far as i can tell, VIX:VXV gave the first selling signal on late december. it took a market a week to begin the declining. last week the ratio struggled to cross to positive MACD region. this week is confirming it. looking at SPY, making lower high w/ weaker technical strength, it doesnt bode well as your call for the possible buying signal.

Anonymous said...

Sorry, I'm new to this signal, so you mean today it generate( or will generate) a signal to buy the equity market (ie spx)? Or you mean buy $VIX call which will mean market tanks?

Bill Luby said...

No problem, Anon. I knew I should have been more specific here.

If it closes at 1.08 or above, the VIX:VXV ratio will generate a long signal in the SPX/SPY or more generally in equities, not in any VIX products.

Cheers,

-Bill

Anonymous said...

Bill, thx! But you must have GUTS to long at this level!

Win said...

Hi,
New to your site. Do you have any data on the accuracy of this indicator? Thanks.

Bill Luby said...

Anon,

Contrarian strategies take more than a small amount of guts.

Win,

No data that are current. Since I am writing this up for the book soon, I will post some data excerpts on the blog.

Cheers,

-Bill

Anonymous said...

Bill that's why I have "GUTS" in ALL CAP...

Anonymous said...

Oh, and I look forward to your VIX:VXV signals by the end of day, if you have energy left after today's chop fest... :)

stonebat said...

FYI vix/vxv ratio topped 1.4 last november. gl

Yossarian said...

Bill, kudos for your great blog, and I've read the VIX:VXV section with much interest. However, on the VIX:VXV ratio, the higher it goes, the more bearish it would appear to indicate. What am I missing?

http://stockcharts.com/h-sc/ui?s=$VIX:$VXV&p=D&yr=0&mn=6&dy=0&id=p02922953605

Bill Luby said...

Hi Yossarian,

The short answer is that the VIX:VXV made its reputation from the launch of the VXV in November 2007 through September 2008 by calling every top and bottom flawlessly.

Like many other indicators, the VIX:VXV ratio was on the wrong side of the market in October. It performed much better in November. Since November, there have been very few extreme readings and most of the ratio's 'bias' has been market neutral to slightly bearish.

I will obviously have to come up with some new charts and data on this soon.

Cheers,

-Bill

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