The VIX/Price cross indicator proved its worth this week and one of my short term goals is to code the cross into TS and test it out on a variety of ETFs. Based on my little ETF basket, the VIX cross looks very encouraging. This rather unusual application of the VIX is not focused on the VIX's behavior above and below moving averages or in conjunction with bollinger bands, but is really a reflection of a zero line volatility cross in the same spirit as the standard deviation study of Friday. The odd hiccup on Thursday wherein the VIX and markets fell together can probably be chalked up to pre-expiration shenanigans or ? (send in your idea).
While the VIX cross will never get you in at the top or bottom, it will let you ride the sweet spot of the support/resistance cycle with very little risk exposure. It's difficult (for my old feeble mind) to imagine a daytrading application of the VIX cross, but on daily bars as a swing trading indicator there are several interesting possibilities including pairs arbitrage based on the sequential timing (firing) of the VIX crosses.
Yet to explored is a reliable exit strategy for the VIX crosses as waiting for a recross will invariably sacrifice most if not all of the accumulated trade gain. As usual, I'll look at fixed bar exits and several other momentum reversal signals profiled already in the Qs Dirty Dozen.
I'm not going to spend a lot of time on the 4LRs study this week. After this past week's carnage all the technicals in the basket are solidly oversold. IWM , the Qs and XLE look poised for a rally, currently riding the lower LR30 channel and, in the case of IWM and XLE, below the LR75.
While XLF's swoon has been dismal, if not downright pitiful, the LR4 chart suggests more downside action is likely as XLF sits on the LR30 mean.
We're overdue for a rally here, but when (and if) it comes next week, the first target levels of resistance in IWM, XLE and the Qs will be the LR30 means.
Easy does it.