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Strategies & Market Trends : Buy and Sell Signals, and Other Market Perspectives

SPY 690.40

-0.5%

Jan 14 4:00 PM EST

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To: TFF who wrote (37384)	9/5/2012 6:55:16 PM
From: Keith Feral	1 Recommendation Read Replies (1) of 221783

I never really thought of the VIX as an expected return ratio. Guess that's why people sell when the expected return is very low below 15 and buy when it's very high around 20. Too bad the VIX wasn't 40 again like last September, then we could really see a monster move!<g> VIX also correlates to manufacturing, which has been slumping from the summer slowdown. Higher VIX usually means lower economic expectations. Usually when it busts 20, you gotta run for cover and try and get back in cheaper. Aside from rotating out of profitable positions the past few weeks, I don't think most people think this is one of those VIX spikes that spells much trouble ahead. Obviously, that could change tomorrow if the ADP numbers are terrible. I would almost argue that people went out of their way to sell into the last rally just because the VIX was getting too low under 14. Realistically, people had a bag full of profits to offset losses from the May meltdown and were more than happy to book them ahead of September. Over the past couple Septembers, the VIX has peaked the Friday after Labor day. Everyone not back in the market will be looking to get back in next week. Still waiting to see where this pullback runs out of selling pressure. Still very much on the edge right now. Last year we had jitters about housing and employment, this year it's down to employment. I think that explains why the VIX was so much higher. Elevated VIX the last couple years also stemmed from lack of confidence in housing and the banking system in general. FED didn't fix it with low rates, but they certainly didn't hurt. The housing correction was allowed to basically run it's own course til the market finally balanced out this year. That's the way it should be, and why Europe is still years behind the housing recovery. It wasn't about getting housing prices back up, it was about letting the market establish it's own equilibrium. My own criticism would be they let too many private investors scoop up all the excess inventory before first time buyers could find better opportunities.

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