VIX 01 (Jun 09 - Oct 11)

[kennynah]

let the fear grip the market...not yet...

[winston]

MARKET SENTIMENT

The VIX was up 8 points on Friday, and that is another 25% move. It basically took out the high hit on all of the Thursday worry. Even though the market was not totally slaughtered with respect to losses although they were not small the VIX still shot higher.

Looking at a weekly chart, it definitely has broken its downtrend. It has surpassed the late 2009 and the January-February 2010 spikes. Those were just road bumps in the overall rally off the late 2008 and early 2009 lows. This is a significant trend break, so there is obviously something more serious ongoing now.

The correction has already taken out the February peak on VIX, but the SP500 has not taken out the February lows. That tells us there is likely more selling to come to at least test these levels. That will be the next key, and that is why I was focusing on it earlier.

Without a doubt, volatility is spiking, and that is what one would expect. Options prices have gotten very expensive. Looking at the volatility, it has even taken out the interim highs in 2008. The next peak is in early 2009 this is where the market bottomed and started back up.

Again, this is not your ordinary selloff. This is something more severe and somewhat expected after the type of run we saw in the stock market.

VIX: 40.95; +8.15

Source: MarketFN.com

[winston]

Want to Gauge the Market's Pulse? Use This Volatility Indicator by Karim Rahemtulla

Over the past few trading days, we've seen the awesome power of stock market volatility at its best - and worst.

Whether or not you believe the so-called "fat finger" theory responsible for last Thursday's bone-chilling plunge for the Dow doesn't matter. The point is, it was a prime example of how the market's two powerful, primal emotions - fear and greed - produce huge volatility.

In this case, it was obviously fear that prompted an all-out mass panic, as the Dow traded in an incredible 1,138-point range between its high and low points on the day.

We saw the reverse on Monday when greed-induced volatility sent the Dow up by 405 points - its biggest daily gain in over a year.

So what's your reaction to this?

~ Either: Say, "Gee, whiz... how about that crazy stock market?" A fair point, but not profitable.

~ Or: Consult an indicator that allows you to gauge the amount of volatility in the market before the stomach-churning lows and adrenalin-fueled highs occur?

If you're not using this indicator, you're missing out...

Want Help Making Your Buy/Sell Decisions? Check the VIX...

If you've followed the market over the past few months, you'll know all about volatility.

But if you've read Investment U over the past few months, you'll know exactly how to use it to your advantage through the CBOE Volatility Index (^VIX)

In early January, for example, I tipped readers off that volatility was back

in the market and followed up a couple of weeks later with a simple way to profit from volatility through just one investment.

Want to know the best times to buy and sell stocks? Just look at the VIX, whose movements work opposite to the broader stock market.

How to Translate the VIX

For example...

~ When the VIX is High: When the VIX hits 40 points (or higher), it signals that investors are fearful... and sometimes in outright panic mode. This is the best time to buy stocks at cheaper levels because a rising VIX usually indicates that the market is falling.

We saw a super example of this last week. On Wednesday, the VIX closed at a comfortable 24.91 points. But on Thursday, as Mr. Chubby Finger sent the market into a tailspin, the VIX rocketed up to a high of 40.71 before closing at 32.80. It then shot up to 42 points on Friday before closing at 40 points.

~ When the VIX is Low: If the VIX drops under 20, or close to the 10-point level, it implies that investors are complacent. You should lighten up on your positions because when the VIX falls, it typically means that you should prepare for a selloff.

So how is the VIX calculated?

Get Ahead of the Market's Moves

The measurement behind the VIX is simple. It boils down to how many put options people are buying versus call options on the stocks in the S&P 500.

When people are scared, they buy puts, betting that shares are going lower. When people are happy, they buy calls, betting that shares are going higher.

The VIX tabulates these trades and produces a number, which measures the likelihood of a market move in a certain direction. And crucially, that number is also a leading indicator, not a lagging indicator.

So let's expand on the action you should take, based on what the VIX tells us...

What You Should Do When the VIX is High and Low

Remember, when the VIX is low - below 20 - it signals that the market is complacent and you should get defensive with your investments. How?

* Make sure you've set your trailing stops.
* Buy put options to protect your profits.
* Sell call options against your positions to reduce your cost and to gain some "income" while you hold your position.
* Buy the Exchange-Traded Note that represents the VIX - the iPath S&P 500 VIX Short-Term Futures (NYSE: VXX). It gives exposure to VIX first- and second-month options contracts and the volatility of the S&P 500 and you can use it to hedge against downside.

And when the VIX is above 40, you should do the opposite:

* Buy calls on the S&P 500.
* Sell put options on stocks that you want to buy (as volatility increases, so do the premiums that you pay/are paid from option buying/selling.)
* Sell short the VIX through the VXX. If you're more risk-tolerant, you can buy put options on the VIX itself.

Last week, I engaged in all of the above activities.

I'd recommended to my options-trading readers that they establish a position in the VXX a few weeks earlier. I was also short both the S&P 500 and the iShares FTSE/Xinhua China 25 Index (NYSE: FXI) - the ETF that holds the largest Chinese equities. I also sold put options on e-Bay (Nasdaq: EBAY), which moved higher due to the selloff.

I didn't see my account soar in value, but it didn't fall much either. Because I was hedged, it allowed me to sleep much better. Now it's your turn...

Volatility is Inevitable... Are You Combating It?

If you're looking for a "signal" about what you should be doing, the VIX should be at the top of your monitor.

That's because in unpredictable times like these, volatility is the rule, not the exception. The chances of volatility increasing are also greater, too, with significant events occurring around the globe more frequently than ever before.

The results of those events will affect you and your investments. That means the need to respond quickly and effectively is critical.

So give your portfolio a check-up and make sure you're prepared for the next bout of volatility.


Source: Investment U

[winston]

On CNBC:-

Volatility always happens at tops & bottoms.

So are we at a top or bottom ?

[millionairemind]

On CNBC:-

Volatility always happens at tops & bottoms.

So are we at a top or bottom ?

hehe... just look at how far we are from the most recent top to fashion a guess..

[winston]

MARKET SENTIMENT

There are a series of higher lows. There is the spike from Thursday and Friday a week before, then the selloff, and the pullback (given the Monday strength). With the bounce lower in the indices on Friday, there is a gap higher in volatility and a higher low. That is what you would expect as the market sells off.

We are not in that serious, deep, terrible correction market where you see rising lows as the stock market hits new highs. We are definitely not seeing rising highs in the stock market; indeed, when the stock market was still making highs VIX was still making lows. That is important.

It did make a higher high, but it came back and made a lower low as the market continued higher. It is a big difference. Historically you have higher lows in the VIX and higher highs in the stock index. Then you are in for a very serious correction. More than a correction more like a bear market. That is not what VIX is indicating here, and hopefully it will remain that way.

VIX: 31.24; +4.56
VXN: 31.55; +3.5
VXO: 29.49; +4.18


Source: MarketFN.com

[winston]

How to Make 15% Dividends and 50% Gains in a Turbulent Market By Tom Dyson
Tuesday, May 18, 2010

Back in February, I predicted stock market volatility would rise. It was one of the most compelling trades I've ever seen…

You can trade volatility like any other commodity. It's traded in Chicago, right alongside pork bellies, orange juice, and Treasury bonds. It's a futures market. If you think volatility's going to rise, you buy the futures. If you think it's going to fall, you sell the futures. There's also an exchange-traded fund (ETF) for volatility. Its symbol is VXX.

"One of the best volatility trading opportunities I've ever seen is setting up right now," I wrote. "I believe you'll make a quick 50% gain in this trade, and with some luck, you could make as much as 100%… in a few weeks."

I formed my prediction from the chart below. Volatility tends to move in multiyear cycles. You'll get long periods of almost no volatility, like the 1940s, 1950s, and 1960s. Then, you get long periods of high volatility, like the 1930s.

The VIX is an index of volatility for the S&P 500. It's the most popular index of volatility. This 20-year chart of the VIX illustrates these cycles perfectly. There was almost no volatility between 1992 and 1997 or between 2004 and 2007. But between 1998 and 2003, when tech stocks boomed and then busted, volatility traded on a much higher plateau.

Right now, America is mired in government manipulation, instability, and economic turmoil. In other words, I believe the stock markets have entered a new era of elevated volatility, similar to what occurred between 1997 and 2003 in this chart…

If I'm right about the long-term trends in the VIX, and the new elevated plateau for volatility, then all you have to do to make a fortune from volatility is buy whenever the VIX falls to 17.5, and sell whenever it rises above 45.

This system has worked spectacularly so far this year.

Volatility dropped below 17.5 in March and stayed there until mid-April. You had around six weeks to place the trade.

In the first week of May, volatility began to rise with anxiety about Greek debt and the euro. Then on Friday, May 7, the VIX soared over 42 after a computer glitch caused the stock market to suddenly crash. The VIX is still trading at high levels… currently around 35. If you'd entered this trade using the volatility ETF VXX, you'd currently be showing a profit of over 50%.

For the final step, you'll wait for the VIX to trade above 45, and then sell your position.

Also, with the VIX above 45, writing covered calls becomes one of the most profitable investment strategies in the world. The VIX is an indicator of option prices. When you write covered calls, you sell expensive options against a basket of blue-chip stocks. And you can generate a reliable 15% income stream while you wait for the VIX to fall below 17.5 again.

The bottom line is if America has entered a new era of volatility, using the VIX to trade will be one of the easiest ways to make money in the stock market over the next few years. Simply buy volatility when the VIX falls below 17.5 and sell when the VIX rises above 45. Write covered calls while you wait for the VIX to return to 17.5.

While you may have missed the most recent trade, don't worry… we'll get another chance soon. And we're on our way to covered call territory.


Source: www.dailywealth.com

[millionairemind]

This is looking VERY UGLY... breaking new high.. looks like revisiting the 80s...

[kennynah]

my guess only....maybe wont reach 80 region this time around...

[winston]

MARKET SENTIMENT

The VIX has had big spikes and higher lows. That typically builds into more selling in the stock market, so you can anticipate that the selling is not over. There was a major spike, and now it has been a week of the VIX pulling back.

It looks like it could bounce given the Friday action, but I think there is still more bounce that could take volatility back near the early-May low and the 50 day EMA. That would take the SP500 up toward its January peak, and that is the inverse relationship between the two at work.

After you have a big spike in volatility, typically there is a move in stocks later down the road. I am expecting more of a bounce here. If we get a bit more upside, that is exactly the kind of oversold relief bounce we are looking for the upside plays.

VIX: 32.07; +2.39
VXN: 31.61; +1.31
VXO: 30.83; +2.43


Source: MarketFN.com