Thursday, July 31, 2014

VIX/VXV Ratio Closes Above 1.00

With today's big spike in the VIX, the VIX/VXV ratio has closed above 1.0.  I have discussed this a number of times over the last few years.  It often marks price level that leads to a rebound in an uptrend.  In this case, the typical bull market pattern would be a probable gap up tomorrow morning followed by a morning sell off, and then a rebound to close in the upper half of the daily range.  If that action occurs it would look like a typical bull market pattern and would be a buy type signal.

However, there certainly have been periods during the major corrections of the bull market where the ratio went even higher as volatility really increased.  So I don't advise buying into the weakness without at least a 1 day reversal.

As I have suggested at here recently, my opinion based on the multiple time frame set up, is that the current top could be a major one, so I am not expecting this to be a typical buy set-up.

If a meaningful buy signal is generated over the near term I will update here, but for now, be warned that this may be a shot across the bow of a bigger directional change.

Interestingly the technical analysis on bonds here looks toppish.  So it seems that both stocks and bonds could fall in tandem which is different than the dominant bear market pattern during 2007-2009.  I don't read too much into this at this point, but it will be interesting from an intermarket analysis standpoint to see what occurs.

Drop a comment if there are any specific questions regarding specific stocks, indexes, or stop loss placements.


No comments:

Post a Comment