… both are Preludes to Stupidity.
The market is all about fear and greed. Hope and regret. Discomfort and and tranquility. Every piece of emotion that moves the market, moves it to a place where it doesn’t belong. Always. Knowing this is at the heart of every contrarian.
Here are 3 VIX charts to give you an idea of where I stand (click charts to enlarge, then click again to focus it). We’ve seen all the technical trader’s point of view, well this is a sentiment-trader perspective- short, medium, and long term.
VIX 1-day (3/10/09 rally day) – use for day-trading entry points. Market rallied a little further than it should; notice the flattening pattern in the VIX while market spiked up, this is an improper rally. This, however, doesn’t mean we can’t melt-up in a nonsensical way.
VIX-Medium Term (1-month)– has every sentiment trader a bit confused. We’ve been stuck in a 5-point and 10-point channel for sometime, and only yesterday did that weekly wedge pattern break to the downside. The closer VIX gets to the breakdown point, the better the entry for swing longs. I have yet to see a “double-spike” (remember that study? ) to signal an extreme level.
VIX Longterm (3-month with 6-month displayed): Remember that VIX breakdown in the 60s? Well, since then we had to “re-set our charts,” meaning we have to come up with new greed/fear extremes. It’s been difficult to get new data points, but after this multi-month channel pattern, we have something to work with. Some things to keep in mind is that too much panic (selling) begets fear (of buying), and too much complacency is a prelude to greed. When we start hitting those extremes, then its time to think like a contrarian. Currently, our market is moving toward the complacency levels despite market being oversold. This is an interesting anamoly which even I am trying to decipher. Hence, my resent and often references to “hesitation and delay.” Either the VIX catches up to the market, or the market moves up to catch the VIX. Just remember, let the market be complacent, you however must question it each and everyday until things make sense.
Take the emotion out of YOUR trade. Use THEIR emotion to guide you.
-gio-
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Awesome post. Original.. thought provoking.. and right on the ..dare I say it.. right on the money
You’re the VIXman, Gio.
Thanks for posting that. I always look forward to your analysis on the VIX.
Where’s happy and well adjusted, Gio?
As Crystal said, it is right on, because I know that I have felt all those emotions, right along with the stock market, even to the point of feeling greed. That’s kind of scary, hey?
We couldn’t have stayed in Fear (or panic) for very long because one can’t survive under that kind of emotional duress, so you have to do something to change it, even if it is to shutdown (complacency?), right?
This is the exact reason why I didn’t even attempt to outline the VIX on my blog a couple of days back… You’re better at the VIX than I am!
Great post my man.
ZM