VIX Index

Started by Stephanos, December 15, 2007, 20:01:49

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liberanimus

#175
VIX Failing to Forecast S&P 500 Drop, Rebound Loses Followers
Κρύο σήμερα. Ακόμα και ο Βήξ βήχει.


By Jeff Kearns and Michael Tsang

Dec. 22 (Bloomberg) -- Investors are starting to abandon volatility as a forecasting tool for stocks after one of the most-used measures of price swings failed to anticipate the biggest monthly decline in U.S. equities in 21 years.

The Chicago Board Options Exchange Volatility Index flashed "buy" signals for the Standard & Poor's 500 Index during October's 17 percent drop, the biggest since the stock market crashed in 1987. The so-called VIX also lost 44 percent since Nov. 20, a bearish signal, even as the S&P 500 rose 18 percent.

Money managers relied on the 18-year-old VIX as a guide for the S&P 500 because the gauge correctly predicted the equity index's range 84 percent of the time and signaled the end of the bear market in 2002. Volatility, along with stock valuations and equity analysts, failed to signal the scope of declines in the worst year for stocks since 1931 as $1 trillion in credit losses spurred the first simultaneous recessions in the U.S., Europe and Japan since World War II.

Stephanos

The Reason Why a Down Trending VIX Sometimes Has No Rally Power
by Marty Chenard
 
The answer to a subscriber's puzzling question: "The VIX goes down, and the S&P moves up. The VIX goes up, and the S&P goes down. But, sometimes the VIX goes down and instead of going up, the S&P moves in a sideways trading range. Can you tell me why?" Thanks, DJ

Thanks for the question, it is an important one because if you don't understand why, then you will not trust the VIX (Volatility Index) as an indicator. Investors need to trust their indicators, and when they can't trust them, they need to know why.

The reason you can't figure out when a down trending VIX produces a sideways movement on the S&P is because you are missing an important indicator that you should be watching WITH the VIX.

Today, we will show you two charts so you can see what you need to do.

The first chart is probably what you are looking at. It is a chart of only the S&P 500 and the VIX on a daily basis.

I marked the 6 times the VIX and S&P gave reversal indications in 2008. In July/August the VIX started a down trend, and the S&P faltered and went into a sideway trading range. And now, as of December 19th. the VIX started a downtrend, but the S&P has only been moving sideways. See the chart below.

So, what is the missing ingredient that would tell you that the S&P "was likely to move in a trading range" instead of having a nice up trend? See the next chart ...




This is the same chart as above, except we added your missing ingredient.

The missing indicator you need to add is a Relative Strength Indicator for the S&P 500. Set this indicator with a value of 30 on a day chart.

We used a 30 RSI indicator below, but we zero-base it on our paid website so investors don't need to interpret the level of the RSI and what it means. A zero (0) C-RSI is the same as a traditional RSI with a value of 50 which is neutral. (We reprogram the RSI to be zero-based, because that way, it is extremely easy to read it with just a quick glance.)

So, let's relook at the first chart, with the zero-based RSI now added in the chart below.

There were actually 3 occasions that the VIX went into a down trend in 2008. The first one was in the March to May time period and it produced a nice upside rally.

The second occasion resulted in a disappointing sideways move that just couldn't keep moving up.

What was the difference in these two different outcomes? The C-RSI was positive in the first event, and negative in the second event. See the blue circles on the C-RSI and you will clearly see why the second occurrence was stillborn.

So now, it is December and we just had the VIX drop below support. Many investors got excited and thought that the S&P was going to charge up in a Santa's rally. Instead, the S&P 500 only moved sideways with disappointment.

So, where has the C-RSI been while this is happening? If you look at the chart, you will see that it is clearly in Negative territory ... and as long as it stays there, a dropping VIX won't give you what you are looking for. As long as the C-RSI remains in negative territory, a dropping VIX will only give you a market with a sideways trading range.

I hope you have found the answer to today's question beneficial as a new tool in your charting endeavors. For those who may want to share today's update with friends or colleagues, a "Send this Page to a Friend" link can be found below.

P. S. We always use a C-RSI based indicator on our paid website so investors can quickly and easily understand what a standard RSI is really saying without interpreting the level it is at.



http://www.safehaven.com/article-12151.htm
My word of advice: "Trade what you see, not what you believe."



Against the Standard Way of Thinking.

Stephanos

Market Starting to Stabilize?

The Chicago Board Options Exchange Volatility Index, or VIX, is also known as the "Fear Gauge" on Wall Street. It measures the cost of using options as insurance against a decline in the S&P 500. The VIX is basically a measure of expected volatility over the next 30 days.

According to a Bloomberg, the VIX had an average level of 16.13 dating back 5 years. Today closed below 40 for the first time since October 2. Over the past 2 months, the VIX has fallen 51% from an all-time closing high of 80.86 set back in October.

According to a VIX options market maker, the VIX above 40 is a sign of market panic. Now that the VIX has closed below 40, it's a sign that the market is starting to stabilize. As fear comes out, money may come in.

From the Bull Pen: A January rally is on the radar of many here. Instead of trying to pick individual stocks, those bullish could consider the Double S&P 500 ETF (SSO) with a stop at $23.50.

Bear Cave: Treasuries could get beat up as we head into 2009. One way to play could be the UltraShort Lehman 20 Treasury (TBT). Consider buying it here and set a stop loss below $35.


Minyanville Staff
My word of advice: "Trade what you see, not what you believe."



Against the Standard Way of Thinking.

Stephanos

The trend in the Chicago Board Options Exchange Volatility Index, or the VIX, suggests that investors are sweating a bit less and breathing a little more easily. Action in the near-term futures, however, shows the era of good feelings may peter out after the first couple of weeks in January. The VIX dropped to its lowest closing level since September 26, 2008, ending at 36.91 as markets improved, with major averages gaining at least 2.9%. However, things just really haven't gotten going yet. Analysts fret over the possibility of a mid-quarter resurgence of hedge-fund redemptions as it becomes clear just who was exposed to Bernard Madoff. Add earnings to the mix, and the world becomes a more complicated place once the middle of the month approaches, explaining why the February VIX futures. "We've had a period of pretty low realized volatility and we've got the expectation that the first couple of weeks of the year, if there's any bias, it could be to the upside," says Michael McCarty, chief options strategist at Meridian Equity Partners. The higher premiums in February futures, he says, "reflects that things will be all clear for the next two weeks but there are lingering concerns for a round of liquidations in the end of the quarter."

WSJ
My word of advice: "Trade what you see, not what you believe."



Against the Standard Way of Thinking.

Stephanos

Προσωρινή στήριξη.
My word of advice: "Trade what you see, not what you believe."



Against the Standard Way of Thinking.

Stephanos

My word of advice: "Trade what you see, not what you believe."



Against the Standard Way of Thinking.

stef

Πιθανος στοχος και αντισταση το apex του τριγωνου.
Υπομονη
"Plan your trade and TRADE YOUR PLAN!"
*****                    ****** http://stockanalysis-stef.blogspot.com/

Stephanos

My word of advice: "Trade what you see, not what you believe."



Against the Standard Way of Thinking.

Stephanos

Παράξενος ο σχηματισμός των τελευταίων πέντε συνεδριάσεων.
My word of advice: "Trade what you see, not what you believe."



Against the Standard Way of Thinking.

spartan21

The last 3 black candles, look like a bit of a "Three Stars in the South" formation.

Stephanos

Δεν είχα υπόψιν τον σχηματισμό που αναφέρεσαι. Το έχω κοιτάξει, μου φαίνεται παρόμοιος αλλά δεν είαμι και τόσο σίγουρος.  :-\
Ο σχηματισμός αυτός είναι έγκυρος όταν έχει προηγηθεί πτώση.

Γιατί να μην θεωρήσω τα τρία μαύρα κεριά ως inside days που είναι ένδειξη αντιστροφής?
My word of advice: "Trade what you see, not what you believe."



Against the Standard Way of Thinking.

spartan21

Φυσικά κι μπορούμε να τα λάβουμε ως inside days, είναι το μόνο θετικό στοιχείο που ύπαρχει όσον αφορά τους πολύ βραχυπρόθεσμους σχηματισμούς.  Μήπως μπορούν να χρησιμοποιηθούν ως ερμηνεία με το προηγηθέν λευκό κερί (kicking bullish)?

Stephanos

Σε αυτές τις περιπτώσεις αφήνουμε την αγορά να μιλήσει και να μας κατευθύνει.
My word of advice: "Trade what you see, not what you believe."



Against the Standard Way of Thinking.

Stephanos

My word of advice: "Trade what you see, not what you believe."



Against the Standard Way of Thinking.

Stephanos

My word of advice: "Trade what you see, not what you believe."



Against the Standard Way of Thinking.

spartan21

Παραθέτω μαζί με τον δείκτη VIX, κι τον S&P 500 γισ σύγκριση. Κι οι δύο δείκτες είναι σε οριακό σημείο.  Η αρχική μου εκτίμηση (δίνω τις περισσότερες πιθανότητες), είναι ο δείκτης VIX να συνεχίσει την καθοδική του κίνηση.

stef

στα 35-37,5 εχει αφησει ενα gap που πιστευω θα το κλεισει
αν σχηματιζει falling wedge ακουμπα την κατω γραμμη τασης στα επιπεδα του gap και μετα πανω
με την αναμενομενη κινηση για SP500, DOW, κλπ.  5ο πτωτικο κυμα
"Plan your trade and TRADE YOUR PLAN!"
*****                    ****** http://stockanalysis-stef.blogspot.com/

spartan21

Φίλε stef, μιλάς για ενδοσυνεδριακό gap?

stef

29 Σεπτεμβριου 2008 στο ημερησιο
"Plan your trade and TRADE YOUR PLAN!"
*****                    ****** http://stockanalysis-stef.blogspot.com/

spartan21

Εγώ πάντως stef, δεν έχω τέτοιου είδους gap (35-37.50).  Ίσως τα data μου να έχουν κάποια μικρολαθάκια.

Stephanos

My word of advice: "Trade what you see, not what you believe."



Against the Standard Way of Thinking.

Stephanos

Από το +10% στο 3,3%.
My word of advice: "Trade what you see, not what you believe."



Against the Standard Way of Thinking.

CANSLIM

να μη διορθώσει λίγο
bear mafia?...sorry I don' t know this word

Stephanos

My word of advice: "Trade what you see, not what you believe."



Against the Standard Way of Thinking.

Stephanos

My word of advice: "Trade what you see, not what you believe."



Against the Standard Way of Thinking.

Stephanos

My word of advice: "Trade what you see, not what you believe."



Against the Standard Way of Thinking.

Stephanos

In the last year-and-a-half, as markets steadily fell to new lows, investors kept their eye on the Chicago Board Options Exchange's volatility index, or the VIX, a much-loved gauge for the level of fright among investors. But recent activity in the VIX suggests that it is not serving as the reliable indicator of fear that it has in the past — or that things really have to get worse, if that is possible.

Major equity averages have slumped to lows not seen since the mid-1990s, but the VIX, which spiked above a reading of 80 in late November, has been relatively muted, barely poking above the 50 level in the last several days.

Investors formerly used a sharp increase in implied, or expected, volatility as a signal that major indexes were nearing a low, if only on a short-term basis. As economic conditions worsened over the summer and into the fall, the VIX reached increasingly higher levels — a reading of 30 was no longer enough to indicate a selling climax had been reached.

However, since February 23, the Standard & Poor's 500-stock index has lost 8% of its value, but the VIX is actually lower, lately at 50.78, compared with a close of 52.62 on that day.

Those looking for a signal that the bottom has finally been reached may have to look elsewhere, because the tenor of the market has been altered. The current environment has been described as a "buyers' strike." With few new investors entering the market, options traders that would normally be taking bearish positions on stocks are also muting their activity, as they're not bold enough to buy puts in anticipation of more panicked selling.

"We're already pricing in big volatility, and we're already pricing in risk. Now, we're just trying to find a level where the sellers quit," says Michael McCarty, chief options strategist at Meridian Equity Partners. "We know there are people liquidating out there. We know it's big, so we're not really surprised, and I don't think we're going to get a signal."

As a result, volume in options trading has declined. Through the end of February in 2008, on average, more than 13.5 million equity options contracts traded daily, compared with 2009's average of 12.36 million contracts traded daily through Wednesday's close, according to the Options Clearing Corp. "It's unknown territory for trading options," says Brian Overby, senior options analyst at TradeKing. "They know eventually [the VIX] is going lower, but they know it could go higher based off of the news we're waiting on."

In coming weeks, the VIX may prove to be something of a contrarian indicator. As the market stabilizes and puts together a rally that lasts more than a few hours, it may finally embolden some investors to sell short, which could cause the VIX to spike. And yet, the bottom may have already been reached.

Wall Street Journal
My word of advice: "Trade what you see, not what you believe."



Against the Standard Way of Thinking.

Stephanos

Symmetrical Triangle
My word of advice: "Trade what you see, not what you believe."



Against the Standard Way of Thinking.

Stephanos

My word of advice: "Trade what you see, not what you believe."



Against the Standard Way of Thinking.

Stephanos

My word of advice: "Trade what you see, not what you believe."



Against the Standard Way of Thinking.

Stephanos

My word of advice: "Trade what you see, not what you believe."



Against the Standard Way of Thinking.

Stephanos

My word of advice: "Trade what you see, not what you believe."



Against the Standard Way of Thinking.

Stephanos

REAL TIME UPDATE - VIX 28.44
My word of advice: "Trade what you see, not what you believe."



Against the Standard Way of Thinking.

Stephanos

VIX Retreats to Pre-Lehman Bankruptcy Levels


.
My word of advice: "Trade what you see, not what you believe."



Against the Standard Way of Thinking.

Stephanos

My word of advice: "Trade what you see, not what you believe."



Against the Standard Way of Thinking.