Monday, April 20, 2009

Sell Signal From the VIX/VXV Ratio Today

Click on Chart to Enlarge

A few days ago I had shown a chart of the VIX/VXV ratio and suggested that a close above the 20 day moving average would be consistent with past effective intermediate sell signals for the general market. That signal occurred today with the large jump in the VIX. While this indicator is still fairly young (because the 3 month volatility index, VXV, is relatively new), this signal has been a good one so far.

Click on Chart to Enlarge

For those interested in the VIX, here is an updated chart of a post I made around the New Year showing how the VIX has tended to use the 78.6% retracement level of major advances as the floor for the next move up since the 2006 VIX lows. The colored lines on the chart are 78.6% retracements of several different VIX advances on the chart. The VIX has now retraced 78.6% of the major advance off the VIX low in July 2008. Several different ways of looking at the VIX are suggestive of further increases in the VIX, so it will be interesting to see if there is any follow through over the next 1-2 weeks.

There is not too much new to cover today, and probably won't be for a little while if the market continues to drop over the next 1-2 weeks. If the market manages to make new highs (say as a blow-off top in reaction to forthcoming news on bank stress-tests, etc), then I will be back to daily tracking of important sentiment indicators.

On the trading front, my plan is to hold the BGZ trade for a potential larger gain. While I do plan to continue to post new trades at short-term extremes, at this point I don't have any interest in bullish trades until the S&P drops to the 780 level or further.


  1. Hi Peter

    I think today (Tuesday) is going to be pivotal as the SP500 is now resting on top of its 20 SMA on the daily.

    When the market fell hard on 10th February it crossed through the 20 SMA during that day and then kept going downwards.

    It will be interesting to see if we get a bounce up from the 20 SMA or push through it today. Futures are currently up....

  2. Yeah that will be something to watch. I have been watching the 14day MA on the index cash values as it had contained all the closes since the beginning of this rally.

    Also, the 10 day MA on BGZ and some of the leveraged funds has done the same. Yesterday closed beyond those MA's so it will be interesting to see if we make another close below those as well.