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Strategies & Market Trends : Ask DrBob
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To: 3_putt who wrote (1813)8/26/2000 12:32:51 PM
From: virtualsignal   of 100058
 
The theory behind VIX signals is that volatility will revert back to its average range, which is simply a measure of when volatility is stretched away from its mean. Think of it as an overbought or oversold indicator. The further away the volatility is stretched, the bigger the move once it begins to revert back to its normal volatility.

Products that are trading well below their normal volatility eventually explode as volatility reverts to its mean. The higher the normal volatility, the bigger that move will be. When highly volatile products produce low-volatility readings, these types of explosive moves are more the rule than the exception.

Watch for a get ready or Reversal VIX by looking for intraday price reversals. Near the daily close watch for large intraday moves in the VIX. They tend to follow through into the next trading day and can be used to predict the market’s open. Here's how it works. If today’s VIX close is 1.75 points or more higher than its open, there is a downward bias for tomorrow’s stock market opening. If today’s VIX close is 1.75 or more lower than its open, there is an upward bias for tomorrow’s stock market opening. This signal's edge over the past half decade has been correct nearly 60% of the time. Also, this edge increases slightly the higher the open-to-close difference is. Near the close of each trading day, keep an eye on this differential.
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