The low VIX is not always an indicator of a bottom heres something I posted last week on Zeev's thread...
From a Big Report article..Courtesy of DWA..I hope..<gg>
"On their own, the common perception is that rising volatility means the market is likely to move lower, and declining volatility means the market will move higher. The common perception is also that extremely high volatility should be bought, while extremely low volatility should frighten us. In a cursory sense, that has been correct in the past couple of years. That said, it could have caused huge problems in the 1990's. Larry McMillan's research team recently published a study on the VIX in "The Option Strategist". (This is a reputable options letter that we have subscribed to for years, a worthwhile expense for those of you interested. If that sounds like a product you would like to receive, visit www.optionstrategist.com for more information). What he found is that volatility spike almost always correspond with periods of opportunity in the market, but low volatility is not necessarily a sell signal.
Since December 1993 the VIX has printed 17 "lows" (defined as a period of no lower readings in the previous 60 days, nor in the following 30 days). After each of those lows the market made a significant move, but only 7 of those moves were negative, while 10 were positive moves in the market. Perhaps more significantly, during the "bull market" of the 90's, the market rallied significantly off low volatility readings 10 of 14 times. Meanwhile, since January 2000, all three "low" readings have been precursors to significant bear moves."
Now before you jump up and down and say the last three were starts of bear moves remember 10 were positive...<GGG> |
