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Bob Palmerton
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Mr. Palmerton has over 25 years experience in Corporate Finance, holding positions as CFO, Director of Finance, Financial Management and Analysis roles for Fortune 500 and multi-national firms (ADP, Honeywell, BOC Group) as well as early-stage growth companies. Mr. Palmerton has raised equity... More
My company:
Baseline Analytics
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.

    Stocks: SPY, DIA
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