Justa Werkenstiff...Re: The VIX..........
The VIX is calculated by taking the weighted average of the Implied Volatility of 8 OEX calls and puts with an average time to expiration of 30 days. As such, it measures fear and optimism as manifested in OEX options activity. When large numbers of traders become fearful, the VIX reading rises, and when complacency about the market reigns, the VIX reading falls. And since the vast majority of put/call buyers are wrong and lose money, it's usually a smart move to fade (go counter to) what the VIX says the the crowd is doing.
The VIX is an INVERSE indicator, which means that high readings are oversold (excess of bearishness) and low readings are overbought (excess of bullishness).
Raw VIX numbers are of very little value. The VIX indicator is most useful when used in combination with some type of overlay, and preferably one that employs channels or bands.
Some technicians use Bollinger Bands on a short term basis(3 months or so) or a linear regression channel, it's also good to use a 20-day EMA of the daily VIX close. When used in this fashion, it is the VIX position within the channel that's important, rather than the raw number reading.
Now about the charts....
Every rally or top so far has come from levels of extreme readings in the VIX, up or down we need a spike.
This also goes for all the other indicators.
Take a look at a weekly chart of the DOW and you'll notice that the rallies of April01 and Sept01 came from extreme reading in the MACD,CCI,RSI,ROC,etc.etc.etc.
We are closer to a top than a bottom on the DOW, but we're probably in for more of this whipsaw shake and bake market movement in the Nas and the S&P's....
The weekly indicators on the COMPX look very similar to the way they looked during Oct00 and Aug01....
The SPX weeklies look very similar to Aug01....
EOM
Shoreco
PS
Once we get the ADX to turn bullish (positive) on the Monthly charts of the DOW, COMPX, SPX, OEX then I feel it is safe to buy and hold stocks again. |
