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To: Terry Whitman who wrote (1810)	4/26/2002 1:25:55 PM
From: Didi	Read Replies (1) \| Respond to of 2505

VIX + L. McMillan's commentary, 4/26/02... stockcharts.com[h,a]dhllnyay[df][pf][vc60][iUb14]&pref=G Larry McMillan: ...http://qs.optionstrategist.com/search.asp ...http://www.optionstrategist.com/core.htm ============================== Selected highlights, rearranged some. >>> Larry McMillan's "Q&A w/MAC" Category: Volume and Volatility Number: 447 3/22/01 $VIX is fairly simple to interpret, but many analysts are trying to do too much with it. There are two scenarios: 1) When the market is declining rapidly, and $VIX is therefore CLIMBING rapidly, ... there is a buy signal when $VIX makes a spike top -- regardless of the level. Don't get trapped into using levels such as 30 or 35. A few years from now, they won't mean anything. Be dynamic -- such as just requiring a spike peak for a buy signal. It appears that we just had one yesterday when VIX spiked up to 42 and then closed at 35 today. They last anywhere from a week or two, to sometimes durations of 6 months or more. 2) When $VIX is at very low levels, ... that is time to buy straddles. ... Often, the market does declines from there, but in several cases in history, it has risen after a very low $VIX reading. So we usually buy straddles after $VIX makes a V bottom.<<< ========================== >>> McMillan Market Commentary Thursday, April 26th, 2002 Charts: optionstrategist.com The market has continued to flirt with disaster over the past couple of months, but the 'buy on the dip' crowd has repeatedly saved it rallying it from support levels time after time. I was somewhat surprised to read in Robert Prechter's Elliot Wave Advisory that a Yale University study shows more people than ever are now inclined to 'buy the dips.' I guess they haven't been punished enough on previous forays over the past two years. All I know is that the buyer that forced the market up over 200 points last Tuesday (and the market hasn't had an 'up' day since) certainly is under water. On Wednesday, the support in $OEX gave way as several attempts to 'buy the dip' failed, and the index clearly broke down. Bearish positions should be taken because of that breakdown. The S&P 500 Index ($SPX) is still above support -- although we would certainly expect that support to be tested now. It exists at 1075- 1080 (Figure 1). So the market may find some support at that level of $SPX. Perhaps we will now proceed to set up a true buy signal. The market has generally been prevented from becoming oversold enough to generate a solid buy signal because of the premature actions of the 'buy the dip' crowd. Every time some downside momentum develops, they jump in and stop it. The market has not become oversold enough in that entire time to generate a buy signal. The relentless infomercial to buy stocks runs 24 hours a day on CNBC, and that -- coupled with plenty of other bullishly slanted information -- has induced plenty of people to believe that the market can't do anything but go up now. Almost everyone believes that the bear market ended last September. As I've often stated, I fully expect a very good bottom for a long rally (even a bull market that might last 18 to 24 months) to begin this year. However, a good rally like that can't begin out of a vacuum. The bulls have to capitulate first and let it sell off to an extreme oversold condition. You might ask, 'Didn't that already happen, in September?' Maybe it did. However, in my opinion, that wasn't 'the' bottom. Does that mean we have to break the September lows? Not really. All I want to see is a sharp selloff where this current 'buy the dip' crowd gives up. Then we'll hopefully see some strong buy signals in our sentiment indicators (put-call ratios, extremely high volatility, etc.) -- at which time we'll turn bullish. Until then, I have to remain bearish. As for the put-call ratios, they are generally in agreement with the bearish scenario as well, although they actually don't look as negative as they did a couple of weeks ago. The 'standard' equity-only put-call ratio is clearly still rising (which means it's on a sell signal), although its rate of ascent seems to be tapering off. The weighted equity-only put-call ratio is definitely wavering, and if it begins to fall that would be a buy signal -- but it hasn't begun to fall yet (Figure 2). Moreover the $OEX weighted ratio is still on a sell signal, too, although it's reached a very high (overbought) level. The others are on buy signals: S&P 500 (both 'standard' and weighted), QQQ weighted, and $NDX weighted. Volatility remains quite low, only grudgingly moving higher as the stock market decline continues and support levels are broken. Virtually the same thing happened last year, when the market declined from May through August, with $OEX volatility trending lower or flat (Figure 3). Finally, about the first of September, 2001, as yet another support level was broken, volatility finally began to increase. While it's always dangerous to assume the market is going to repeat itself in exactly the same way, it certainly seems that it could happen that way again. In accordance with all of this information, we are maintaining a more bearish stance -- although there are certain to be short, sharp rallies. In addition, there will probably be attempts to support the market when $SPX reaches the 1075-1080 area.<<<