You know what, I could spend another 3 hours searching for that next support or resistance on the SPX or the NDX or crazy DJI. But instead, I trace the entire market by analyzing the VIX.
If you missed my Vix analysis from about a week ago to guide us through this final month of madness, I’m re-posting it. In the notes, it shows what has happened is all according to plan. Basically, my prognostication was that the market would senselessly rally as the Vix would move back down to the low 50s. Therefore, I mentioned it would be a difficult for the bears for the next few weeks. In the post, it explains a little more why I’m looking to re-short with the Vix in the 40s. Here it is…
From 12/7/2008 post
“Day Traders: Fade the gap, but wait for volume decline. Swing Traders: Get long until Vix low 50s, but choose your entry points wisely“
Anyway, let me say I am not bullish in the traditional sense of the word. Until the 200 day moving average points UP, and we start seeing leadership in stocks, then I will get “bullish”. However, if you’ve followed me before, then you know I’ve done a preliminary study of the major rallies in 2008 which have turned out to be “Sisyphean Rallies” (to see those rallies, please go back to this post “Sisyphean Rallies- Bulls Get Squashed, Over and Over Again” to understand the important nature of these “rallies” before you decide to get long. I don’t want ANY OF MY READERS to decide to get long stocks in the same fashion that CNBC or Cramer, or any bottom-caller talking head wants you to get long- sheepishly). Basically, these are facades, that you must not fight if you are a bear until you get extremes on the Vix, and if you are bull who chooses to get long you must do so cautiously. CAUTIOUSLY! All these Sisyphean Rallies end harshly- the higher the boulder is pushed up, the weaker Sisyphus gets and the harder the boulder rolls.
Let’s see where the Vix will take us:
– first off, here’s the Vix chart I placed last week Monday. This chart proved very helpful during a week full of news and anxiety:
[Original analysis of this Vix found HERE. Click if you care.] The imporant thing you need to know about this chart: “- There was actually some bullish moves going on in the Vix. Notice the two wedge patterns that led to two spikes down? That’s actually medium term bullish, short term bearish (hence the “double spike” theory or the target at Vix 55 to start shorting aggressively on a healthy pullback). “
… look where the Vix is today. Vix = 59.57. That’s not much of a drop, so there’s still some worrying out there. But that’s good for the bulls. If we can get more volume in buying (more sheeps), then we can break the trendline and send the Vix back down for a higher probablility point for shorting. Notice the double top on 80. I’m still overall bearish, but what in the world can get us back to the 80 spot?! Not much really, so don’t be a perma-bear and try and time news events. It’s better to time sentiment- for that, wait for the Vix to hit more complacent levels which should extend there on low volume moves up the market:
… so, at the moment, it looks like we are starting yet another significant Sisyphean Rally, which means I can finally enter swing longs while shorting intraday as a hedge. However, I probably won’t enter larger swing positions until after quadruple-witching day this month, and we probably won’t see much of a rally until early or late January. So there’s no real reason to rush things bulls. I think the Vix will probably get stuck in a channel between mid 50-60 before we see a meaningful trend/rally on a weaking Vix. Meanwhile, I also think if the Vix does manage to get to the 40s, then I’ll start shorting aggressive again.
So, it’s up to you. I do think we are setting up for a pretty strong Sisyphean Rally. So if you go long, be cautious. Always remember the boulder can roll on you fast. If you’re a bear, don’t rush either… have you ever knocked a bull down to the floor? They can be real nasty.
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My general feeling is that the redemptions have been postponed until next year Jan. – March, maybe through the fall. Most people are waiting for the market to recover at which point they will try to get out. I also expect some really high VIX numbers shortly after the inauguration. Me, I’ve got bigger fish to fry, I’ll check back on the market in a few years.
Really great work. Thanks for the re-post. I’m paying attention this time.
This is The Anton listening.
Scum, a few years? I hope the fish is good. Hopefully this weekend I can actually catch a fish to fry.
Hi Gio,
Actually, yes. The gubbermint has completely taken over what was left of the free markets. I’m going to 90% cash, after that I’ll try real estate for awhile. This market is messed up. I made some really good calls over the last few years but IMO the easy money has been made. I’ll still stop by here and follow the markets, but it will probably never be like it was. Good luck.
With 30 yr fixed mortgages projected to be around 4%, I’d say it’s a great time to get long some real estate esp if you aren’t over indebted now … the next millionaires will come from this debacle via good RE, PM or Equities investing.
VIX fib 61% is $45
That’s a good spot. Vix 45. I would like to see a spike down there for the boulder to start rolling.
Hey Scum… I like the idea with real estate, but I think we’re still far from a bottom there. In our local paper today, they mentioned home prices in almost every sector in Hawaii is down, some as low as -10%. I am very bearish on my own state. Lol.
BTW, my friend, who is one helluvah cook, came over this weekend and made the best beer-batter fish I’ve ever had. Bellisimo!
Great post as always GIO,
I really appreciate your analysis! I think you’ve talked about this a little bit before, but I was wondering if you could, at some point, revisit how you choose the VIX levels you do for high probability long/short entries.
I’m watching the VIX like a hawk today after yesterday’s spike down.
GIO, watching the VIX tickle the 40s here. Wisdom from the Wave Trader?
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I kind of like chilling down here.
I tried shorting a bunch of gold stocks this morning… wow that woulda been good! Problem was, no shares to short! Anywhere!!
I tried EGO, GG, RGLD, …nah dah. Nice fade though. Remember, gold is up due to rate cut, therefore, it was all sell-on-the-news.
-gio
Hey Heckler, thanks for bringing out the Vix. I made comment over on Addict’s tab about it. Here’s the summary:
1- Vix still looks like it can fall a little further
2- Vix Fib level 45 (thanks Z)
3- Not a good time to enter new longs
… I’m still holding off from shorting heavily. I notice a lot of ugly stocks still moving up today, and we still have some oversold sectors running (Shippers, solars, financials), so just waiting until the next Vix Spike down. Hopefully quadruple witching Friday’s volume will do that for us.
-gio
Thanks GIO, you’re the man! I’ll be watching the markets and the VIX close tomorrow. Appreciate the sage advice!