ld - VIX yes: "If I'm reading him correctly [Paul Cherney ], he's saying that a higher (rather than lower)reading would mean the market may be going down."
Low readings of the VIX implies low volatility in the market, low volatility implies small changes in the prices, also range trading.
In an upward range, low volatility should then mean that we stay in the range: upward. Same for a downward range.
If volatility was to change drastically, this would mean larger changes in prices,( up and down price changes, also a break of the trading range): break, as we all know, can be upwards or downwards.
The traditional interpretation is, IMHO, that the peaks are the representation of panic sell-offs, as the throughs are the representation of lower prices bottoming. Chart reading in a small window (3 to 6 months) during 1998 and 1999 would have lead to that interpretation.
As the VIX has been orderly printing lower prices in a long period of time (from April till now), the interpretation I come with, is that the market is driven by an orderly bullish order flow (not seen in months or years). When the VIX will show increased values (still only my interpretation) this could be the sign of the re-entry of speculative or momentum players, consequently, time to get out.
At what value? I don't know: from March 1991 through Dec 1996, VIX very rarely printed 20 or more. Bearish sign, keep out of the market? VIX below 20= you must sell ?
From Mar 91 to Dec 96, the SP500 climbed from 340ish to 620ish.
Better:
Early Dec 94, SP500= 443, VIX=14.91
Mid Feb 96, SP500=664, VIX=17.06
I can be completely wrong, but the VIX values will not prevent me to sleep. But if the CCI, or the ROC, on the VIX, were to peak suddenly, then I will worry. |
