Shorting in VIX 40s = success, despite its search for a bottom. yeah, I’m scratching my head a little. Tags for $EDU, $MELI, $DRYS

 

 
I guess all that matters is that it worked.  Market down -200 at one point today.  (had to change that. Lol.)

First of, let me say that the Vix is still falling even though the market is falling (what the?).  I can only attribute this to three events:

1)  The rate cut to zero, which is causing a lot of short term confidence (relief from fear, hence dropping VIX)

2)  Quadruple witching’s re-setting of options.

3)  Low volume holiday trading (we have a shortened week)

… what you need to understand is that the VIX is searching for a new range to trade in.  Since greed/fear is dynamic with news and deteriorates with memory, you have to keep re-setting your VIX ranges.  I think between October to November that range was something like 50-80.

So, despite the Vix’s trickery (falling while market falls), it turns out that selling longs at Vix low 50s, and shorting in the Vix 40s (spikes down, if you can find them) turned out to work quite well.  I excuted three shorts that worked really well on this higher probability setup.  Don’t get me wrong though, I am keeping a list of leaders that have been moving up under the market’s radar, and if they pullback on low volume then as a loose CANSLIM rule, you would want to buy those.  Anyway, here are the three shorts I took up matched with the spots on the VIX that triggered my entry.  I closed DRYS for a 22% gain and MELI for a 12% gain, still holding EDU short:

A nice breakdown in a momentum stock (DRYS).  I did a few intraday shorts in this too, and since the momentum fades worked intraday, I knew it would work for multi-days.  Shorted Thursday.

 

MELI was one of those ugly stocks that went up like a billion % in the past few weeks.  Shorted it on a VIX spike down instead of chasing this.  A nice high probability setup.

 

And EDU, which I forgot why I shorted it. Lol.

 

So anyway, as you can see on today’s tape, so far it looks like the Fed’s Rate-Cut Rally is completely wiped out.  That usually happens if you understand what “sell-on-the-news” means.  And finally, the Vix remains a little elusive here.  I have yet to figure out a new range that will give me higher probability short and long entry points.  My guess is 37-57, but it probably will be tighter as we head into 2009’s lame duck period (I would not want to be heavily short going into Bush’s exit).

Well, it was cool to surf two 10-footers (DRYS and MELI).  Time to go watch the real surfers pound ’em over at Bonzai Pipeline!

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