VIX Encourages Bull Hubris

We have seen this movie before, and it sucks. But it is what it is and what it is is the firming of bull hubris.

The silly bulls enjoy the party and keep coming back to the punch bowl. The sane players drank from it early, before it got warmed over, drooled into and just downright stinky. The sane players have long since switched to Club Soda and are hanging around to see how the wild party ends.

Really, does analysis of this mess really need to be much more complicated than that? Stock prices can go higher in the short term, of course. This is supported by the fact that CNBC is about to air a sentimental retrospective of last year's disaster (the old 'if everybody's expecting it...' routine). So yeh, we have seen this movie before and the last time we saw it, the movie began in 2003 and ended with the cyclical bull market highs of 2007. The sequel has no such guaranteed longevity. Not by a long shot, and not without a hard correction to shake out the increasingly suspect investor base.

Comments

[Prudent Man...:]

Coincidental indicator according to the Myron Scholes and Bob Mertons who received the Nobel (Socialists) Award for designing the formula that calculates the Volatility Indexes. They should not be used for forecasting, e.g., in 1999 when it was 60 and the market continued up for six months.

Sep 10 09:38 AM

[NUCLEAR1929:]

the lower the vix, the cheaper are my puts

Sep 10 10:36 AM

[NUCLEAR1929:]

Good point, VIX only have a meaning when it's in low teens or at new historical highs, everything in between is for...


On Sep 10 09:38 AM Prudent Man CFA wrote:

> Coincidental indicator according to the Myron Scholes and Bob Mertons
> who received the Nobel (Socialists) Award for designing the formula
> that calculates the Volatility Indexes. They should not be used for
> forecasting, e.g., in 1999 when it was 60 and the market continued
> up for six months.

Sep 10 02:09 PM

[http://www....:]

i think you are spot on there! VIX is nothing but a measure of premiums paid on Options, it is at extreme levels where this premium says something about the market's moods


On Sep 10 02:09 PM NUCLEAR1929 wrote:

> Good point, VIX only have a meaning when it's in low teens or at
> new historical highs, everything in between is for...

Sep 10 07:46 PM

[AlphaKing:]

My research has shown the VIX can be used very well for determining market sentiment, and a warning signal for market reversals. In any time frame, observe the mean of the VIX (i find he 100-period sma to work very well) and when the vix reading reaches 50% above or below the mean, it is a very good warning sign for some consolidation or a decent reversal/pullback.

I am not suggesting investing based solely on this analysis of mine, but rather implementing or considering it into your investment arsenal. Within this recent bull market, the greatest difference between the VIX and its mean was during the end of July when it was approx.35%. This suggests a breakout may be imminent, most likely down in the VIX and up in the markets.

Sep 11 12:11 AM

[David Van K...:]

Talk about hubris. You have probably squeezed more name-calling and sarcasm into a short article than anyone in a long time.
--"it sucks"
--"bull hubris"
--"silly bulls enjoy the party"
--"this mess"
--"increasingly suspect investor base"

How long does the market have to go up before you can invest in it profitably? Five years (2003-2007) isn't long enough? That was just a "cyclical bull market...disaster"? Sorry you missed it, it was fun. And the last 6 months have been fun too. (Don't worry, my exit strategy is already in place, I won't need your help with it.)

Sep 11 08:23 PM