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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: orkrious who wrote (61603)	5/22/2006 11:48:14 AM
From: John Vosilla	Respond to of 110194

Does this break out in VIX now signal a much more volatile period is upon us? It is about time<g>

To: orkrious who wrote (61603)	5/22/2006 11:51:23 AM
From: redfrecknj	Read Replies (2) \| Respond to of 110194

from Aaron Brussat The VIX, as many know, is a fear/volatility indicator that can be used to find significant market lows. Here are some interesting statistics on the VIX relative to what's happening in the market today. Going back to 1990, the RSI on the VIX has only exceeded the current level (77) five times, and all were associated with capitulation/panic moves or long, steep declines: Aug'90, in the middle of a 3-month, 32% drop on the Nasdaq, Oct'98 (end of a capitulation move, followed by a spectacular rally), Oct'00 (the beginning of a 61%, 6-month drop on the Nasdaq), Sep'01 following 9/11 (also a capitulation blow-off move), and *Jul'02, three months before the bear market ended. In three of the five cases (Aug'90, Oct'00 & Jul'02), there were 2-5 months of significant downside left. In the other two, significant rallies took place. In the case of the two that rallied, significant deterioration had already taken place prior to the capitulations that generated these readings, so I don't necessarily apply those as positives in the current situation. Both the VIX and put/call ratio are showing extreme fear. The 7MA of the CBOE total put/call ratio is at 1.21, easily beating the prior all-time record of 1.14 in Oct'05. A VIX/PCR model I developed last year shows a spike that is consistent with intermediate lows, but there hasn't yet been any true panic or long decline as in all of the above scenarios. In the most bearish case, the relative spike in both indicators (the put/call ratio AND the VIX) are not too dissimilar from those of mid-Apr'00 when the Nasdaq completed the bulk of its first move down (except the relative spikes today are more severe.) The index put in a lower low in May'00 and retraced about 50% of its losses over the subsequent 4 months. Between May and Sep'00, extreme complacency returned, setting the table for a 6-month, 61% decline on the Nasdaq.