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Strategies & Market Trends : Technical analysis for shorts & longs -- Ignore unavailable to you. Want to Upgrade?

To: Johnny Canuck who wrote (36149)	2/12/2002 10:46:16 AM
From: Johnny Canuck	Read Replies (1) \| Respond to of 70208

[madtrader] Mon Feb 11, 9:33pm PST $VIX.X A lot of people are making the case that what we saw today was nothing but a short covering rally, mainly due to the fact that we are oversold short term, and the lack of negative news. I am sure I really care what the market is doing at this point. There are tons of fantastic setups that I see plenty of opportunity to trade. I know it is frustrating if one wants to trade with a certain trend, and trends have been tough to come by lately. Which is why I am spending more time with candle charts, most of the setups require less than 3 days worth of data. And for the ones who wants to go short the market, VIX has been the rallying cry to suggest that the market is due for a fall. Well, VIX has been at it's current level going on for almost 4 months now, and I believe people better get used to it. I know as traders, we are very much influenced by the environment that has been the most recent. Much like my early days as a broker, calling on little old ladies and suggesting them to buy US Treasuries yielding 8%, and being told the yield is too low. For those old ladies have been so used to 10% or higher yields in the 1980s. Most traders, traders that has been trading since the late 1990s, are used to VIX gyrated between the low 20s and to the occational extremes of the mid to high 50s. But if one spend some time and go through the daily VIX reading for the past 15 years, one soon gets the picture that VIX readings that consistantly staying above 20 is really a more recent development. In most of the 1980s, and the first half of the 1990s, VIX spends majority of it's time below 20, the average reading is closer to 15. And there were even a couple of years that majority of the time VIX got stuck around 10. Sure, the crash of 1987 got the VIX reading as high as 172.80, and it wasn't until a year later that VIX got back down to the 20s again. And we won't see VIX spike up again until the UAL debacle of 1989, which pushed VIX up to the 50s. But since then we have only seen it pushed that high twice more. The most recent being last September. If we look back again and look at some corresponding developments in the market, it is hard to argue that VIX got spiked higher as the final leg of the bull market went into full swing, and due mostly to technology and dotcom type names. But most of the dotcoms are gone, and overall weighting of tech names has fallen back to the pre-bubble levels. So, it is harder to see other contributing factors to consistantly push VIX much higher. One can even make the case that 9/11 is much more important than the Asian economic crisis of 1997, and the UAL debacle of 1989, the two other times VIX got above 50. Had 9/11 happened a year earlier, VIX could have spiked much higher. Why? Stock prices were much higher then. From these observations, it is my belief that the market is going into a period of low volatility, much like the late 1980s and early 1990s. After a major bear market and a severe shock to the system, it has to go through a healing process. The Enron fraud, and the accounting panic are all of the cleansing process. So I am prepared for a period that the VIX falls back to the mid teens. none