Monday, June 08, 2009

VIX - Down But Not Out

I haven't examined the VIX for a while, but here's my standard Telechart template applied to that rascal. In contrast to the normal weekly update Telechart display which uses the VIX as the comparison chart, I've overlaid the VIX with the SPY (S&P500) line chart to show relative price action.
I mentioned this phenomenon months ago, but the VIX/SPY and VXN/Qs and RVX/IWM crosses have consistently provided great entries, both on daily bars and, more appropriately for day traders, on 1 and 2 minute bars. Exits are based on other signals and I've explored several in previous posts, including the parabolics, MA crosses, the Detrend and others.....
The orange channel is the 30 bar linear regression channel (LR30), which I have found to be extremely useful is gauging momentum and support/resistance levels.
At this point the mean reversion side of my brain looking at this chart sees probabilities favoring a VIX decline down to the channel mean (27.50) and possibly further. Over the past 3 months, each of the upper channel "kisses" has followed this pattern and there is scant evidence to suggest an impending change (disregarding fundamentals which, of course, are dismal at best).
If there is a change is trend, we'll likely see it coming with a break off the LR30 channel and a VIX pattern of "kissing the channel goodbye" as we saw in March will be a true sign of a new bear phase.
Just something to keep an eye on to help minimize exposure to the wrong side of the trend.


bill said...


can you post what trades you would have taken and why?.

thanks for you continiuos educations

bzbtrader said...

No trades today. .
I was working with clients all day....