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Strategies & Market Trends : Zeev's Turnips - No Politics
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To: limtex who wrote (39886)3/11/2002 11:24:17 PM
From: Psycho-Social  Read Replies (2) of 99280
 
The VIX: Sure it can be useful, although it's not one of the indicators I use for decision-making. The reason it's somewhat tricky to use is that it's a hybrid indicator: a measure of sentiment and a measure of expected volatility. The math would be somewhat complicated, but if you could devise a formula using past daily, weekly, monthly and quarterly volatility, you could adjust for the volatility aspect and come up with overbought and oversold bands that "float". Remember that during the mid-90s, when we'd been through a period of very low volatility, the oversold area was 17 and the overbought area was around 9. Using 22 as the oversold reading would have made no sense in that era, and I suspect we may be gradually moving back toward lower VIX highs and lows. Right now for example, 20 might be the lower limit and 30 or so the upper.
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