VIX 01 (Jun 09 - Oct 11)

[winston]

THE #1 REASON TO BE SCARED RIGHT NOW…. by TPC


The fact that no one else is. The VIX is fast approaching levels that are consistent with very high complacency. I know, stocks don’t go down, the economic recovery is here, it’s a “win win” market, etc.

But the VIX sinking below 17 is a sign that investors are increasingly confident removing hedges and leaving their portfolios exposed to greater risk.

Many of of the most brutal sell-offs in recent years were accompanied by the exact same environments – government had intervened to save the economy, all was well in the world, and on and on.

The market has a way of fooling the majority of investors the majority of the time. Right now looks like a good time to be hedged – not necessarily because you’re bearish, but because it’s the contrarian play….

http://pragcap.com/the-1-reason-to-be-scared-right-now

[kennynah]

wah.... early bird catches the worm ah....

[winston]

Weekly Review

VIX. Volatility broke down sharply this week. Friday was a very sharp break. It was probably influenced by expiration, so I do not want to read too much into it.

It is worth noting that the last time it was this low was back in March and April of this year. When it got this low, the market rolled over and went into some serious selling.

Looking at the SP500 chart, it peaked in late April and fell into the base that walked through the summer, and then it broke higher to begin the fall.

At this level, volatility can be an issue. We will see what happens. There is a lot of complacency. People are not buying much protection out there because they assume the market will go up. That is part of the problem.

When everyone who will be in the market gets in and they think nothing can go wrong, most of the money is put to work. At that point, that is when you can have pullbacks in the market.

VIX: 16.11; -1.28
VXN: 17.31; -0.94
VXO: 15.52; -1.74


Source: Investment House

[winston]

What the VIX is Telling You to Do Right Now by Karim Rahemtulla

With light trading volume on the U.S. exchanges in the run-up to New Year, many investors’ thoughts have already turned to what the early part of 2011 has in store.

The smartest ones with the best chance of getting a leg-up on the crowd are watching the CBOE Volatility Index (^VIX).

With the stock market’s recent ascent to new 52-week highs, the VIX has moved in the opposite direction and moved close to its 52-week low of 15.23 points just before Christmas. It’s currently rebounded a bit and now trades around 17.20.

If you’re not already doing so, this is something you need to pay attention to as we roll into 2011. Here’s why…

What is the VIX?

In short, the VIX is a measure of the stock market’s “pulse.” That is, it gauges investors’ mood, based on options trading among S&P 500 companies.

It’s easy to remember the relationship, as it works in the opposite way to the market. If more investors are buying calls, they’re betting that stocks will rise. As a result, the VIX will head lower amid perceived complacency.

If there’s more put option-buying, it’s a sign that investors expect stocks to fall. This fear will cause the VIX to rise.

Reading the VIX

When it comes to using the VIX’s movements with your trading decisions, the index has established trading ranges and specific points that you should monitor. When the VIX trades…

~ Above 40 Points: Investors are in panic mode.

~ Above 50 Points: Investors are in all-out selling mode.

~ Higher Than 50 Points: This is a rare occurrence (it’s only happened twice before), but if it happens, back up the truck and buy S&P call options in anticipation of a reversal.

~ Between 20 Points and 30 Points: This is the toughest range to gauge, as the market isn’t giving a clear signal.

~ Under 20 Points: The market is heading into solid bullish territory and investors are feeling really good.

~ Under 15 Points: Investors are feeling too good and complacency has set in.

And we’re close to this latter range at the moment…

What the VIX is Telling You to Do Right Now

When the VIX drops into this 15-point range, you need to start thinking about being more defensive with your investments.

The problem is, the VIX can trade in these low ranges for weeks, even months. This means you must be counter-intuitive. That is…

* Start making plans to lighten up on positions, or…
* Take measures like selling call options against your positions. This is a very difficult thing to do from a psychological standpoint, since you have to wrestle with your emotions.

Don’t worry, though… because whenever the VIX has fallen below 15 – and especially if it falls into the 10-12 range – it’s always been a good time to sell (even if it sometimes takes a while before being proven right).

The key question to keep in mind is this: Is the next 10% or 20% climb worth the possibility of suffering an even bigger decline on the way down?

Remember, the market tends to fall much faster than it rises and it’s always harder to get out once panic sets in. On the way down, investors invariably pick the worst point to sell because they’re shocked by the speed of the movement.

Don’t fall into that trap, because when the market is falling, you need to be flush with cash in order to scoop up the bargains.

Here’s what you should do…

When the VIX Falls, Raise Cash

As a general guideline, raise cash at levels that correspond with the VIX.

That means with the VIX under 30 points, your cash levels should start to accumulate, maybe at a rate of 2% for every point lower on the VIX.

However, with the VIX currently around 15-17 points, you should raise cash at a rate of 5% for every point that it drops. If the index falls under 12 points, that number should rise to 10% for every point. If the VIX trades at 10 points or under, your cash position should be at least 50%.

These are guidelines that I’m adopting for my portfolio. While it may seem overly conservative, you only need to look back two years and remember exactly how you felt. By being flush with cash, and also holding a substantial equity position, you may lose a bit of money on the way down, but at least you’ll have powder ready for the huge bargains that invariably pop up during a panic.

http://www.investmentu.com/2010/December/vix.html

[winston]

Weekly Review

The VIX is basically going nowhere. This has been the fear for many television pundits over the past couple of months. They are concerned that the VIX is at historically low levels and that can cause trouble. Well, the earth can open up and swallow us all tomorrow as well.

No, that is not really a problem for us. Looking back, the VIX can stay at very low levels for very long periods of time while the market is moving higher. During 2004-2007 the market moved up.

You have a problem when the volatility rises while the market rises. That happened in 2007. That is when you have a correction coming, and that is not the case here.

Volatility can stay low for a long, long time while the market rallies, and it is not even down to those levels now. It is not showing a correlation of up and down with the market. It does sometimes, but it is not doing it now. I am not going to get bent out of shape about it.

VIX: 17.14; -0.26
VXN: 18.72; +0.31
VXO: 16.05; -0.17


Source: Investment House

[kennynah]

VIX at 17 is no big issue.... hardly anywhere near total complacency...

VIX could well go to as low as 15 in the short term...

[winston]

THE BIGGEST DANGER SIGN IN THE MARKET

Of all the stock market danger signs confronting investors and traders, today's chart might be most worrisome from a short-term perspective…

Below is a three-year chart of Wall Street's "fear gauge," the VIX (short for Volatility Index). The VIX monitors the price traders and investors are willing to pay up for stock options, which are often used as portfolio insurance.

When the VIX is high (above 35), it tells us investors are scared… and willing to pay up for protective options. During the credit crisis, for example, the VIX skyrocketed past 75 (blue arrow). When the VIX is low (below 20), it tells us investors are complacent… and see nothing but blue skies ahead.

As you can see from the chart below, the VIX is "in the basement" right now… and sits around 16. We haven't seen this level of investor complacency since just before last April's Flash Crash.

It's the same complacency level as mid-2008… just before the credit crisis. Call us crazy, but when everyone sees blue skies ahead, we start looking for rain clouds. Right now, we see two big ones in the U.S. municipal debt market and a euro meltdown.

www.dailywealth.com

[winston]

Looks like all these guys are writing about the VIX at the same time ..


When This Stock Market Signal Flashes, It's Time to Get Short By Jeff Clark

Periods of low volatility in the stock market are always followed by periods of high volatility. Always.

It's as certain as spring following winter.

Of course, when you're suffering through temperatures that would make an Eskimo shiver, it's hard to remember spring is on its way. And when stocks are a one-way bet, when the market moves higher day after day in unending bullishness, it's hard to imagine it moving in the other direction.

But it always does. You can bet on it.

By the look of the Volatility Index (VIX), the market may be about to change temperature...

The blue lines on the chart are the Bollinger Bands. They indicate the range of volatility on a chart. When the Bollinger Bands squeeze closer together, as they're doing right now, it indicates a period of contracting volatility. When they expand, as they did back in May, it indicates a period of high volatility. One always follows the other.

The bottom graph charts the width of the Bollinger Bands. The width is now as narrow as it was last April – just before the "flash crash" and the start of a 20% correction in the S&P 500. There are many other similarities between today's market environment and that of last April. Investor sentiment is wildly bullish. And there are multiple technical divergences.

The biggest warning sign, however, is coming from the VIX and the contracting Bollinger Bands. This condition existed for several weeks last spring before stocks finally got hit. So the bullish party may continue for a little while longer.

Now is definitely not the time to get complacent. Keep an eye on the VIX. When the Bollinger Bands start to expand, we'll know the long awaited correction has finally arrived. Long-term investors should head for the sidelines. Short-term traders can speculate with short sales and put options.

http://www.growthstockwire.com/2611/Whe ... -Get-Short

[winston]

Weekly Review

The VIX has dropped back down to the start of the Q2 2010 lows. That matches up with the lows of summer 2008 before the financial crisis sent volatility exploding higher.

It is back to these levels, and that has people calling for corrections. When it is was down to this level before the summer of 2010 and that selloff, it led to a big spurt higher.

It can lead to selling. The market is at a point where it has rallied nicely for two strong legs in a row. It is approaching next resistance. The problem is, it is not showing any signs that it wants to slow down right now.

Volatility indicates that there could be a correction in an ongoing rally. It is not indicating there is a long-term major turn to the downside in the market.

If volatility was rising higher as the stock market rallied higher, that would be a danger sign. I do not see danger now; I see a level that could indicate an interim correction coming.

There is still room for SP500 to run to the upside before it hits next resistance.

VIX: 15.46; -0.93
VXN: 16.49; -0.96
VXO: 14.36; -1.11


Source: Investment House

[winston]

VIX Puts Stocks On Correction Alert By Prieur du Plessis

I alerted readers to the possibility of a pullback/correction on stock markets in two posts on Thursday and Friday: “I’m hedging my stocks by going long volatility” and “Stock markets: two canaries calling for caution“.

My sentiments were echoed by Richard Rhodes (via the StockCharts.com blog), the editor of the daily trading reports, The Rhodes Report.

Rhodes said: “The recent rally in the broader stock market has begun to correct; and it shall likely correct for the next several weeks. We view this decline much in the same manner as the January 2010 to early February 2010 decline, during which the S&P 500 Index lost roughly 106 points or nearly -10%.

“Certainly our momentum models are turning lower, and now we view the VIX as a confirming indicator that perhaps has higher [VIX] prices in mind than anyone is prepared for at this juncture. But at this point, we view any decline in stocks as transitory prior to perhaps a larger high in the 2nd quarter.”

Rhodes continued: “To wit, the weekly chart above shows major support at the 16 to 18 zone is holding once again, and has for all practical matters since mid-2007. … one could very easily note once the VIX turns higher, then it generally “spikes” higher.

If that is the case here, and the probabilities do favor such an outcome, then minor trendline resistance at 19 should be taken out. This would argue for a 200-week exponential moving average mean reversion exercise that would carry prices upwards to 24.56 or even slightly higher.

At that point, quite obviously the technical landscape would need to be reassessed, for further [VIX] gains would put the declining trendline of the 2008 to 2010 highs into play. We fear what a breakout above this level would mean to stocks and the US economy in general.”

http://www.dailymarkets.com/stock/2011/ ... ion-alert/