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Sunday, January 19, 2014

$VIX - Large Move Due in Symmetry

VIX has been flirting with the white and red trendlines.  The VIX Cycle suggests a move above the white trendline from 2008 is imminent.

VIX has been trading higher since March of 2013, and clearly that warns of declines ahead for SPX.  A large move is due in the symmetry.  

4day Chart









24 comments:

  1. Well there is a large downtrend with lower lows and lower highs since 2009. The main trend in volatility is down for 5 years now. Going long volatility so far has been wrong trade, fighting the main trend down.

    Who is there to say that it wont make another trip to the orange support line in 10's or lower? .. and continue with lower lows/lower highs? for several more months or longer... or much longer?

    As this volatility went down significantly we observed general market break out to new highs.

    SPX is 1850 .. i remember you ridiculing SPX to 2100 when we were at 1500. Does not look funny anymore, does it?

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  2. What does imminent mean? Days, weeks, months?

    Also what level would Vix get to 20-25? Corresponding level in UVXY 30?

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    Replies
    1. The VIX Cycle is suggesting can see 25 VIX or better in February.

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  3. Thats a 100% gain in Vix so would that be 100% in UVXY to $30? I dont expect UVXY to outperform until Vix his backwardation.

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    Replies
    1. I can show on the next Cycle chart the time frame when backwardation would occur. The time frame is well defined.

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  4. Hey SC

    Your short still doing okay with the index. Just the UVXY isnt so hot. You think it will catch up?

    My chart telling me you may be right this time with a bit a of down move soon: http://investmentgossip.blogspot.ca/


    Cheers!

    ReplyDelete
    Replies
    1. Yes, it'll catch up but expecting this particular initial move to be only a moderate rise for UVXY. The big one is later. I'll explain with the Cycle chart.

      Delete
  5. A large part of volatility products is dependent on not only the level/price of volatility but the term structure of the monthly futures and decay. One can be right about volatility but because of the approx. -15% rolling yield for uvxy a month plus additional decay from rate of change and still lose money even if volatility increased beyond the point is it bought. The question one asks themselves when they buy volatility is the "when" question and not the "what" question. Everyone knows that volatility can't stay at 12 forever and have to go up some point in the future. The question is if after the money rolling yield and the decay if the spike from volatility would more than account for these two handicaps to the trader month after month. If the timing is not right, then a purchase of vix at 12 even if it spiked to 20 could mean a loss (e.g. a volatility spike does not occur within a 3 months time frame). I think of buying volatility as buying insurance such as life insurance. If one knows they would most likely die in the near future within a certain timeframe such that money paid to the insurance company is less than the payout from the insurance collection, I would buy as much insurance as I could. Otherwise, it is just waited money that the insurance money invests elsewhere.

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    Replies
    1. Yes, "when" is important.

      For small moves "when" is critical. Keep in mind though, the larger the move, the question of "when" is less important.

      Delete
  6. Hi SC,

    When do you think the crash will bottom ? Thanks!

    ReplyDelete
    Replies
    1. I have a Cycle chart coming that will explain my view. This particular move is simply an initial pop for VIX.

      Delete
  7. VIX

    http://traderjoed.blogspot.com/

    ReplyDelete
  8. VIX gapped above the white trendline yesterday, therefore, breakout for VIX.

    ReplyDelete
  9. Hi SC,

    Would you please share your target of VIX, 20, 25, 45, or 65 for this run ?
    Thanks!

    ReplyDelete
    Replies
    1. The target area for this particular move is as shown on the VIX chart above. The green area. Roughly 22 to 28.

      The VIX Cycle shows this move as 3 green candles straight up. Then importantly, the VIX is likely to stay elevated for 1-2 months.

      Delete
  10. Hi SC,

    So you mean VIX will stay in 22-28 area, unlike what we have seen before: a spike up to 20 for a few hours, and spike down from 20 and stay around 13 for a long time? Thanks!

    ReplyDelete
    Replies
    1. That is correct. In the Cycle this is not a brief spike up for VIX. This time, according to the Cycle it should move up and stay elevated for months.

      VIX has been consolidating around the white trendline and this is a breakout that is likely to have staying power.

      Delete
  11. From the desk of Chris Hunter, Editor-in-Chief, Bonner & Partners

    As our friend Rick Rule puts it, "Always buy straw hats in winter."
    This is another way of saying, "Buy low, and sell high."

    Thanks in no small part to the effects of negative real interest rates, courtesy of the Fed, US stocks are now trading at valuations near to... or in excess of... previous market tops.

    Here are six reasons to avoid buying US stocks now (credit to Bill's old friend Mark Hulbert for the historical comparisons):

    1. Price-earnings ratio – On a 12-month "as reported" earnings basis, the S&P 500 trades on a P/E ratio of 18.6. This is a higher P/E ratio than that of 24 of the 35 bull-market tops since 1900.

    2. Shiller P/E ratio – This measures stocks' price-earnings multiple using average 10-year inflation-adjusted earnings. The S&P 500 now trades on a Shiller P/E of 25.6. This is a higher Shiller P/E ratio than that of 29 of the 35 tops since 1900.

    3. Dividend yield – The S&P 500 has a dividend yield of 2%. This is lower than the dividend yields of all but five of the bull-market tops since 1900.

    4. Price-sales ratio – The S&P 500 now trades on a price-sales ratio of 1.6. This is higher than that of all but two of the bull-market tops since 1955 (which is how far back data is available).

    5. Price-book ratio – The S&P 500 now trades at a price-book ratio of 2.7. This is higher than all but five of the 28 bull-market tops since the mid-1920s.

    6. Tobin's Q – This indicator looks at the combined market value of all the companies on the stock market relative to their replacement costs. The Q ratio is now higher that it was at 31 of the 35 past market peaks.

    Of course, this time could be different. US stocks may deliver decent long-term returns despite high valuations.

    Just don't count on it...

    ReplyDelete
    Replies
    1. Thanks for the interesting statistics!

      Delete
  12. Congrats to SC!! After three years of shorting, he might get this one right.

    But, SC, wouldn't be better to buy the dips the past 3 years?

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  13. Hey Congrats SC, hope you took profit on your recent add, or you plan to hold?

    My analysis: http://investmentgossip.blogspot.ca/ suggest we are in for a rip soon. :)


    Cheers!

    ReplyDelete
  14. Sc, if Vix pops to 22-28 and stays elevated for 1-2 months, will UVXY enter backwardation? I just remember in 2011 how Vix pop to 35-45 and stay there for 1-2 months but TVIX moved 700% in that time frame.

    Curious what UVXY targets you have for this move.

    Thks!

    ReplyDelete
    Replies
    1. I am anticipating that the same effect will occur as summer 2011 but later in the Cycle.

      For this initial move, the VIX should stay elevated for 1-2 months. So it does bring up the possibility of backwardation. It could be possible but it still is a little early for that effect to be significant.

      Later in the Cycle, YES, very much so. Will have the updated Cycle out shortly, and that will explain how this should unfold.

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