Thursday, September 18, 2008
Trader Vix
I could write a whole buncha words about VIX and the old adage, "VIX is high, time to buy, VIX is low, time to go". I did in fact write tons of words on this quite a few years ago, but couldn't find it with Live Search, so when I find it, I'll link it.
This is a very quick study showing VIX in the lower frame in comparison to the INDU. It is a weekly chart, which I believe is the most appropriate for a sentiment indicator like VIX. If you followed every little squiggly VIX low or high, you'd be a dairy maid, churning churning your account. The take-away are the thick orange and green line showing prior VIX/INDU high low clustering.
The first part of my fearless (ie, WAG) thesis here is that the old high (that big cluster of high VIX in 2002) is a very critical test. The current weekly close low has cracked that test, but there are two days left in the week.
I'm not at all suggesting this is an "investor" buy, although there may be a short reaction rally after three days that have set records not seen since 1998 in terms of net down.
The second part of my thesis is that VIX, like the INDU test of the old high, must test its personal high from that same period (see the shaded red box showing the gap). That likely means more downside and a hammering of that thick orange old-high test with a few more spikes, similar to the past hi-volatility period. The potential target low in this WAG is 8000-- based purely on geometric symmetry. I'd hedge that, however, with what I didn't put on that chart, which is a horizontal line under that lengthy trading range from 2004-2006, at about 9500.
I'll revisit this over the coming months.
Labels: chart-analysis, Dow-INDU, sentiment
At last, over the rim
of the waiting earth
the moon lifted with
slow majesty
till it swung clear of the horizon and rode off,
free of moorings
- Kenneth Grahame,
The Wind in the Willows
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