Thursday, February 21, 2008

A different perspective on the VIX and VXN

A lot of blog chatter recently has centered on expectations for the VIX. Two of my favorite checkpoints are and
My current market expectations for the VIX can best be shown on the above charts, which are the 3 linear regression studies (30,11,3) of the weekly bars of the VIX and the VXN (Nasdaq). In both cases the index is currently under the LR30 lower channel line. Since the typical behavior of the indices is mean reversion, this suggests VIX 34 is a likely next cycle target. The LR11 channel shows the consolidation range the VIX has been displaying for the past 4 months with a mean of approx 23 (current reading=24.70). Ditto the arguments for the VXN, which actually looks like it could sustain an even larger move to revert to the mean.
With both the VIX and VXN weekly cycle technical indicators getting ready to turn up, the implications for the markets are decidely negative. . .hence my ongoing reluctance to adopt any long positions. Although there are clearly bullish winners every day, I'm not a stock picker but prefer to dabble in the relative safety of the indices. . . and from that vantage point I maintain my intraday sell the rallies strategery.

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