Jeffrey, one shouldn't get carried away by the VIX here...always think about what the VIX is actually saying. first of all, it is calculated based on OEX options, and as i have said in the past, OEX options volume is a far cry from what it once was, thus not representative of overall sentiment anymore. secondly, the OEX p/c ratios are actually dropping along with the market, so it's not an increase in put demand driving the VIX. rather it is the market makers marking up premiums of BOTH calls and puts, due to the increase in volatility. in fact the VIX is NOT giving a buy signal here, as it goes hand in hand with an overall one -day CBOE p/c ratio of 0,50 with the 10-dma still at an incredibly low 0,49! almost 1 million individual equity calls were traded today, indicating that everybody hopped on the bandwagon of 'one-day sell-off, immediate snap-back'. the sellers of the OEX puts are cautious, not the buyers eager, thus the high VIX.
in other words, i expect the selling to resume sooner rather than later. however, i'm open to the possibility of another indecision day or bounce before that happens - one can never be certain after all and there may be more distribution that needs to be accomplished. but the sentiment is complacency among speculators, and nervousness among the MM's imo. incidentally there was a PVI buy signal given yesterday, as put volume spiked somewhat compared to the 10-dma of put volume, which had shrunk to totally negligible levels. that's normal on a day the OEX tanks by 30 points. so i wouldn't read too much into this signal either, as it is more a result of the complacency BEFORE the drop than the heavy put demand during the drop.
the bond is getting close to a capitulation low imo, but it's not there yet. while bullishness is certainly muted in the bond arena, no-one is really betting heavily on a decline either, as the Rydex bond ratio remains rather subdued. of course, the jump in closed-end bond funds and high-yielding stocks may presage a short covering rally in bonds soon, so we certainly are getting close.
note that money fleeing towards the safety of high yielding stocks is a temporary vote of no confidence w/regards to zero or little yielding stocks.
sure, your idea of a two-day bounce followed by more selling on Monday has some appeal as well, as it would help to alleviate some of the oversold readings some more...but note that so far the plunge continues in Asia more or less unabated, despite their oversold readings in some cases being a lot worse. maybe they'll turn around, we'll see...
regards,
hb |
