Friday, April 17, 2009

VIX:VXV Ratio Down to 0.92

With the SPX at 873, it looks like a good time to get short to me...


Eric said...

I think I commented on here that I thought the near-term range would be 40 down to 33. We hit 33.78 today. So, by my guess, I think it is time to get small. But I still would be hesitant to be short equities. I am short Gold, and that has paid me nicely since mid-March.

Anonymous said...

Bill, short this afternoon, or maybe wait for the crowd to pile in Monday morning?

Bill Luby said...

Good comments.

Do you have a target price for gold, Eric?

I like to be short going into the Monday after options expiration, particularly after a significant uptrend.

On the other hand, I don't like to get short when the markets are continuing to move higher and make new highs.

I've already started to get short and expect to add to the position if I see any signs of weakness in the last hour.

As an aside, I hate trading on expiration days...


Eric said...

I see gold breaking down to 825 in the very near term. I am hesitant to commit much capital as I know I can't outsmart the market. When Platinum comes back in a bit, I will get long Platinum (I may have missed that). I love that pairs trade.

But honestly, I think Gold looks to have double-topped and is overdue for a major retracement down to 600. It hasn't retraced like the other precious metals and no one expects it to. There is a bullish confirmational bias toward gold that is ignoring several factors. The high savings rate, massive deleveraging (I think this will be a multi-year process), and a possible short-lived equity bull cycle. Most of all, I think the money that has flowed into Gold is already there, and I think if we do not see a major run up in Gold this year, investors might suffer from exhaustion and flow into the equity rally/trough.
I think we will eventually see a big rally in Gold, but not before a major correction.

Anonymous said...

Of course it's a good time to short equities. Did you see how many SPX puts were bought in the past week? Just mind-boggling.

Pete Birchler said...

Hey Bill

I have been watching that VIX:VXV closely too. From looking back at charts it seems that a reasonable system for trading off this indicator is to wait for a close below the lower bollinger band (and below 1.00)and then wait for a close above the 20 day MA for short entry on equities.

Also, I have commented before on a way I look at the VIX by keeping a running count of lower lows (or higher highs) in the VIX after a major tunring point. Friday was 14 lower lows in the VIX since The Nov closing high. I have found that 12-16 typically mark major turns. The huge volatility jump into October got as high as 20 higher highs, but I've never seen anything higher than 16 other than that looking back several years at least.

Anyway, that method of analysis seems to support the bearish case as well.

Take care!

Anonymous said...

Very Nice work. Yes time to short.
I think that we have see the top or mybe top between 878-882. I dont`t see close above 885.
This week I will begin by leaving some notes on the monthly chart and then move to the shorter time frame.
This moving average has been a reference in the last 10 years.
Who do you think we are in bull market, there is one more example that this movement is part of a movement still in bear market.
It will be much the examples that I will leave that much on this subject has been questioned by most traders.
815.28 is an important value, make the low closing in 2002. A value to watch for the end of the month. The next move should expect a corrective option 1 or 2.
Better than the words the graphs speak for themselves.
Big trades. Leave your comments it is important to this blog.

John said...

Mr. Birchler -

Superb idea, counting higher highs and so forth. How far was your lookback?

Pete Birchler said...


The VIX counting method I mentioned has worked very well since the VIX trough in 2005-2006. Looking back further than that you can see that the VIX was at times able to make more than 16 lows, etc before major intermediate turns.

So if we continue to see lower lows, maybe that would be suggestive of an emerging bull market (or at least a longer term decline in volatility).

Anyway, that method is just one way that I look at the VIX that I have briefly talked with Bill about before and thought that other traders may want to consider adding that type of method to their VIX arsenal.

Bill Luby said...

Peter and Carlos,

Thanks for sharing your thinking here. I like both of your approaches -- and conclusions.

Regarding the running count, it is something that I have used with the VIX, but not in the way you describe, Peter.

Carlos, I have had 875 and 900 marked on my calendar as likely upside resistance -- and each the 200 day SMA gets a little closer too.

Still, while the bears may have been able to stop the rise, they haven't been able to reverse the least for now.


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