Vix in low 50s = SELL YOUR LONGS … so, how did that work out?

I’ve stated for a while now that once the Vix gets to the low 50s you should already be exiting your longs.  Boy did I nail that!

The real frustrating thing about it… when the Vix hit the low 50s a lot of financial websites and other blogs were telling everyone to BUY!  They were saying how the Fed cut to zero means we’ll be having a great Christmas rally.  Buy this now for the Santa rally!  Buy buy buy!!

Don’t people even realize what a rate cut to zero means?  First, to me it means Bernanke is now out of bullets.  Secondly, its not so much the price of borrowing that’s the problem, its the bad credit that everyone has.

Meanwhile, I watched the VIX show me that people were actually buying this crap.  I mean, did you see how fast the Vix dropped?  Complacency is dangerous, and its a good sign you should start selling your longs (I stated to get long the market when the Vix was in the high 60s = fear, or the exact oppositie scenario  🙂 )

If you’ve been following me for the past couple of days, then you know how much I’ve been stressing this.  In fact, I’ve been shorting stocks whle the Vix was in the 40s.  Remember, Vix in the 40s = higher probability to short.  The Vix was down -10% at one point.

Do not be misguided with your magnetized compass…

 Follow the VIX!!

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A lot of correlations out there are just not working in the past few days.  You know what, it’s probably that fat guy in a red suit carrying a huge bag of magnets. 

Have you ever tried bringing a compass near a magnet?  It seriously distorts the needle and can really misdirect a traveler.  That’s what I’m starting to see as traders try to navigate our murky markets in the past few weeks.  Hold up… it’s the other way around!  It’s not the traders who are navigating… it’s the market!  In turn, a misdirected market is misdirecting traders.

Huh?

That’s kind of a hard concept to grab.  Just remember, we’ve had a bunch of low volume days which leads to a lack of accumulation.  This already tells me that whatever moves being made in the market are not “real.”  Additionally, the anticipation of a high-volume day, this Friday’s quadruple witching, is causing a lot of strange space alien action on the tape.  This is all leaving us (or me) scratching our (or my) heads (or head…Lol.).  Quite perplexing indeed!  … we’ve witnessed the market shake-off a 4th quarter loss from MS of $2.4 billion yesterday, saw oil fall under $40 despite OPEC saying they’re going to cut oil production by a record 2.2 million barrells (and oddly you see an airline stock like Hawaiian Airlines jump 16% off that news, when I very well know, Hawaiian Airlines is suffering badly.  I can see it with my own eyes!).  And all that happened in 3 days!  Don’t forget how we’ve shook off the auto-bailout rejection, and the gloomy job numbers.  

…The market just doesn’t know where to go with all these new and groundbreaking policies being inacted, bailouts we’ve never seen before, rate-cuts to zero, record oil cuts, dollar yields nose diving, $50 billion market frauds through one person.  This is all uncharterred territory..

…this is all happening too fast, and majority of the market is on a holiday, unable to react to this stuff.  To me, this is nothing more than a Sisyphean Rally.  As the Vix declines, the market goes up.  We’ve been dwelling in fear so long and been oversold so long, this market inevitably would get a relief rally.  But nothing more.

I cannot endorse our current market as a true bullish parade, and I sure hope you are not using the current shake-offs of bad news as a bottoming process.  Traditional sexy bottoms are made from leaders, following capitulation.  What I’ve witnessed is a drop in the Vix… just for the fact that people get tired of feeling gloomy.  Ha!  No, this is not a real rally.  It’s a magnet to a compass.  Do not be misguided!

The market is forward looking.  We’ve never had rates cut to ZeRo in… ever?  How can we be forward looking if we don’t have a memory of it?

 

The cartel cut oil at a record 2.2 billion barrels, how are we supposed to react to that? Hmm, less supply means higher prices? So that should hurt airlines? Wait, isn’t that bad for the economy?

Of course we don’t know where to go… obviously there hasn’t been enough transparency or strict enough regulations since we’re giving our money to scoundrels like this guy.  It was a Ponzi Scheme! It shoulda been sniffed out a looooooooooong time ago.

And who knows where the market will go, I mean seriously, who knew Bush was that quick?  That definitely threw off traders.

 

… the market doesn’t know where to go.  Are you willing to bet heavy on that premise?

 

Aloha!
-gio-

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Jerry:  Hey Joe, you heard of the Vix?

Joe:  Yeah, the quarterback who killed dogs?

Jerry:  No fool.  The guy who killed bears, and a few bulls. So what… should I go long?

Do I really need to draw the lines out for you? Lol.  Just look at the bottom one (3-month chart).  The wedge is actually broken to the downside if you’re really picky about the lines.

And here’s just a beautiful fade I caught this morning! Unfortunately, not enough shares to short to make it meaningful. 🙁   At least we know there’s still some power plays out there to short intraday…

… I’ll let you know if I decide to switch from price/momentum/volume indicators back to sentiment/psychological/greed/fear/sex indicators.

And here’s a Twitter shout-out to my new fellahs on the streets.   A highly caffeinated shout out to Jana_for_really for really making trading fun; a anti-shout-out to CelticsNow; sumedhmungee likes black gold;  acolyer bullish on the buck; don’t get slapped by the nVisibleHand!  JohnnyMartin, you really shoot Flight of the Conchords?!  All I can say is, “stick it together with the tape, the tape of love.”  Chris_swain for a coach on money; hail-marry pass to jerryrice… maybe you should get out of retirement?; ronmasoncoach trades the future; k_blake for covered calls; timothymoore engineers his trades, soCal; jkingsbury likes the Red Sox and Patriots… what are you smoking?  Lol.  See yall on the streets!

 

	lucatony / Martin Yerfino
	eminitradingpro / Chris Dunn
	jkingsbury / Joseph Kingsbury
	MyGrass1sBlue / Chris
	DreadLordQuark
	WestCoastWS
	wallstreetweek
	overstockdotcom
	CelticsNow / Celtics Now!
	jbs1083
	johnphoebe
	Jana_For_Really / Jana
	jbrad88
	gumbyhead
	ginfizzfan1 / ginfizzfan
	sumedhmungee / Sumedh Mungee
	vurtzk
	kimhaynes / Kim Haynes
	acolyer
	TheNvsibleHand

 

 

	JohnnyMartin
	chris_swain / Chris Swain
	theblurayblog
	powitz
	goyaale
	jimmykrakorn
	Rick__H / RickH
	rdrosenbaum
	iddeoflo
	LiveToLearn
	h20man
	OnTheCall
	gregoryajohnson
	jerryrice
	sssc
	ronmasoncoach
	jefkelly
	equititrend
	k_blake
	timothymoore / Tim Moore

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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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Finally! I’ve been waiting for this to happen. The Vix was stuck in some kind of channel, with the Vix trending lower down that channel, which I noted was very bad for the bears. My target is still the 40s to start shorting again, but I’ll need another spike within that area… I realize that may take weeks.  Remember, the market reversed on two very bad Fridays, and today, the market decided to blast off on Fed news.  On those two Fridays, the Vix barely moved! Maybe up 3% tops.  Now, on “good news”, the Vix drops nearly 10%.  Once again, the Vix was firing a lot of warning shots at the bears.

Meanwhile, I still don’t think its a good idea to enter swing longs here either. Usually, the effects of the Fed on the market are undone in a few days, then the real direction is in place from there. So basically, pull the plug again.

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I’m using this boring time in the market to try out some new software. Not so much trading software, but some other cool stuff that can probably be useful to you when The PPT is released, or just some new stuff for me to waste my money and time on (I just like to learn stuff). I know a lot of you guys want everything for free. Free free free! Trying to minimize your costs thinking that will maximize your profits. Yikes! You never took economics? Maximizing your profits, potential, and skills is a product of productivity! How low on that productivity curve are you? Don’t you want to get higher? Hence, as I say sometimes, “you gotta spend money to make money.” Just don’t buy something that will mess up your productivity (like when I bought a Wii.)

… besides, we have about 2 weeks left to start digging for tax write-offs. (and if you’re not an active investor, sorry, you cannot write-off the -40% loss when you liquidated your stocks. You’re capped out at $3,000 on your schedule D per year. The rest are carried forward. Yikes! That is, unless you have Madoff’s accountant helping you out.)

Actually, this market kind of picked up today with the Vix moving about 7%. Ignore it. It’s a false flag. Did you see what happened in the final 30 minutes of trading? Market squeezed in about 3 minutes. Lol.

For the rest of the month, I will start posting some memorable trades, calls and setups I made in 2008 to see why it worked, and what to do next time. Most of them were bearish, so not so impressive.

Pull the plug!

-gio-

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