Saturday, May 22, 2010

USING THE VIX AS A GUIDE


*click to enlarge.
IMHO the VIX is a voting mechanism, players BUY calls for long exposure, Puts for protection.....a rising VIX ratio let's us know the movers and shakers are getting nervous, this pulls back demand for buying and is why a RISING VIX spells LOWER prices for stocks.
BULLISH VIX trends show a decided falling trend (thoguh VIX does rise and fall to extremes, is why we add moving avg's)....declining FEAR = higher stock prices as FEAR of declines wane.....falling fear to hold LONG positions.
I am in DIRECT disagreement with some of my top subs......so take this for what its worth JUST my opinion and 2 cents, for me at VERY least I have WARNING SIGNAL of stock market trend change.....
This could turn out to be just a big correction in ongoing cyclical bullish trend. I find recent 6 90% down days and VIX spikes highly irregular in an announced primary up move.
I also don't like the underlying fundamentals, but they dont always pan out into price movement.
I don't like contracting credit and bank loans and find jobless claims inconsistant with economic expansion. I find current deflationary environment inconsistant with expansionary views.
Many of my "associates" have thrown caution aside......recent volatility may lead to price gains as counter move BUT for ME RISK prohibits BOTTOM calling in this environment and am willing to wait for MA's to signal enought YES votes that some risk has come out.
An intra day quickie play? I wouldn't rule that out with small amount of funds......2 feet staying out.
Duratek

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