Seeking Alpha

Bob Palmerton's  Instablog

Bob Palmerton
Send Message
Mr. Palmerton is the founder of Baseline Analytics TrendFlex, a market trend-following system incorporating high-probability trend change signals. Robert is a Registered Investment Advisor. He is co-founder and advisor to The Absolute Return, LLC, which manages a family of absolute return... More
My company:
Baseline Analytics TrendFlex
My blog:
Baseline Analytics
  • Using VIX And Put/Call To Identify Potential Trend Change 0 comments
    Nov 23, 2012 8:20 AM | about stocks: SPY, DIA

    Market sentiment can be measured in many ways. These include Investor's Intelligence surveys, the Daily Sentiment Index (NYSEARCA:DSI), as well as readily-available VIX and Put/Call ratio indicators.

    Baseline Analytics TrendFlex uses VIX and Put/Call ratios as an indicator to assess the risk of the current trend changing.

    For example, see the chart below. The S&P500 is plotted on the main chart with VIX (pink line) behind it, and the Put/Call ratio below. Each indicator is compared to its 34-day exponential moving average.

    (click to enlarge)

    You will note the ovals drawn at various points on the VIX chart as well as circles drawn on the Put/Call ratio chart. These indicate extreme points vs. the indicator's 34-day exponential moving average. VIX and Put/Call indicators and their "gap" from the moving average are treated as contrary indicators. In calculating part of its TrendFlex Score, Baseline Analytics treats an extreme high in VIX or Put/Call, considered "extreme fear," as a contrary indicator. This signals a potential bullish trend change. Note the extreme points marked at the start of June 2012. That point effectively signaled a shift in the S&P500 from a downtrend to an uptrend.

    Although this signal is not 100% effective on its own, traders and investors are encouraged to use this tool alongside other technical indicators to assess the risk of change in the current trend. Click here to learn more about Baseline Analytics TrendFlex indicators and our TrendFlex Score designed to measure the risk of a trend change.

    Themes: Market Outlook Stocks: SPY, DIA
Back To Bob Palmerton's Instablog HomePage »

Instablogs are blogs which are instantly set up and networked within the Seeking Alpha community. Instablog posts are not selected, edited or screened by Seeking Alpha editors, in contrast to contributors' articles.

Comments (0)
Track new comments
Be the first to comment
Full index of posts »
Latest Followers

StockTalks

More »

Latest Comments


Most Commented
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.