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Technology Stocks : Semi Equipment Analysis
SOXX 298.01-0.5%Dec 15 4:00 PM EST
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To: robert b furman who wrote (2450)3/27/2002 4:27:35 PM
From: Sun Tzu  Read Replies (2) of 95580
 
> have a funny feeling that those who think the low volatility (vix)signals a complacency that will result in a market drop may be 180 degrees off.

VIX is not and has never been a good predictor of market tops. To begin with, VIX is more of a reaction rather than prediction. When the market tanks, it does so suddenly. Thus VIX rises. The same is also true for volatile up moves (more rarely seen but the internut bubble did have them for a good part). When the market threads water or the relative stock price movements slow down (as it often happens at the tops) then VIX is low. But this is not a predictive item; it is a reaction to the lack of volatility in the market. VIX can remain low at the bottoms of U recovery. Another forgotten point is that VIX is a function of supply and demand for the options. So anytime there is more supply of options than there is demand, VIX drops (all other things being equal, of course). So for example, if a lot of stock holders chose to write covered calls, then you'd have a low VIX, even though by definition writing covered calls implies lack of faith in strong up move.

The bottom line, Put/Call ratio, AD line, and Cumulative New highs are much better indicators of index moves than VIX.

Sun (who is overstretched but not torn up yet :D on the long side) Tzu
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