Continuing to Watch the VIX Trend

Monday's rally needs no more than a big WOW. I do not even dare try to call a bottom given that all the technical indicators I usually use to watch for a bottom completely broke down during the market's cascading crash.

Instead, I am keeping a closer eye on trends. In one day, many stocks broke the steep downtrends in place since the selling intensified at the beginning of this month. Still, there is plenty of overhead resistance combined with longer-term downtrends that will no doubt attract new waves of selling.

The VIX is also still in an up-trend that began after Labor Day. Monday's big 21% drop has not quite broken that trend. If this trend is not clearly broken soon with some additional drops, we will be back to wondering just how many more new highs will it continue to make.

An additional move downward in the next day or two will encourage me to put on hold my strategy of riding the trend by buying and selling puts to accompany longs (I will not sell my remaining puts). After that, I will next monitor whether the VIX forms any kind of base from which it could resume its rise. A break back below 30 or so will indicate to me that this latest phase of increased volatility is most likely over.

Comments

[whidbey:]

Dr.

Your calculations are interesting, but the 70+ readings are new territory for the VIX, none of us know whether it is indeed fear or strategy related to the financial events. It is wise to expect more down side, probably new lows. The violent bull runs in bear markets is the pattern I am finding most probable, so I will wait and watch, plenty of time to enter if we are wrong. Thank you.

2008 Oct 14 06:06 PM