Over the weekend we talked about trading in the face of fear and as far as fear is concerned there is the famous fear indicator called the VIX. When this is popping it means odd lot put options are being bought heavily. Typically odd lot put options betting on a market drop are done by the masses and the little guy so to speak. You see they are convinced that the market is falling apart AFTER it's already started a big part of its move already. It's a great contrarian indicator if you look at it from that perspective. Below are two charts -- one of the S&P 500 and one of the VIX.
The blue circles mark lows on the chart above, now look at the chart below. Notice how when the lows are put in on the S&P 500 above those lows correspond with highs in the VIX?
Pretty neat huh? In the short term we will soon be relieving some of this push down. Typically that happens in the form of a dead cat bounce, Elliot Wave ABC 3 waves up, snapback rally -- call it whatever you want. That's when we want to be on our toes for laying out short sells. Recently you've heard us rant and rave to not chase stocks on the long side and let them come to you. Well the same applies here too only it's on the short side. We won't be chasing shorts AFTER we've already fallen. We'll let them come to us and the only way they can come to us is in the form of some sort of bounce by the market.
In the coming days you'll be seeing a lot of educational articles dealing with what to consider doing with a bounce in the markets and how to profit from it when it stops bouncing via short sells.
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