12 October 2009

(VI)X Marks the Top?

So the S&P500 just about touches the high of the year from last month and slowly backs away. At this point I'm not going to remind you of my top call from September 30, just in case it blows straight through to new highs and trashes my reputation as market soothsayer and guru. LOL

The point of focus for me is now VIX. The finer points are expertly covered by Adam Warner and Bill Luby (and others), but I'm looking at the 23% level and wondering whether that is the base level for right now.

Which begs the question. Is the VIX predictive or reactive... or both. I lean on the side of reactive, but the mean reverting characteristics are well known, hence indicating as least some predictive implications.

The next question is "can technical analysis be used on the VIX?"

I say why not?

I say you can, so long as you're not trying to make predictive assumptions with pretty coloured lines and purely mathematical constructs. To me TA is about create boundaries of proof and disproof. This fits in with VIX analysis for me.

IOW a break below 23% disproves my basing hypothesis. A bounce above supports it.

Adam and a few others use the "10% above or below the 10dma" method to spot potential points of over/undersoldedness (to invent a new word). I'm far too lazy for that so I've tacked a 3,10,16 MACD on the bottom to essentially arrive at similar conclusions. It works adequately for that purpose.

Do we see an oversold VIX? Yes. Does it mean anything? Who the hell knows. But there is that divergence on the bog standard MACD.

The upshot is that I'm trying to convince myself of the chance of a double top right here.

Yes, I'm fighting for my guru call's survival...

...somehow I fear it may be in vain. This market just wants to go up.


Mazz said...

Intel and Google earnings this week, so maybe temporarily no equity weakness for this week [I hope, lol]

Wayne said...

Banks too Mazza.

Interesting post on vols over at http://vixandmore.blogspot.com as well.

It won't matter what they say, they'll want to buy it I'll bet.