My VXO indicator says it was OK to buy stock and stock options from June 17th to the present. VXO stayed in X's today (barely) and I bought more. While the VXO is still in X's, VIX reversed to O's.

As soon as they both break down below their multi-O bottoms it will be too late to buy…….possibly for awhile.

Stay cool………..

VXO broke below a spread triple bottom today; and VIX hovers at the triple bottom with no breakout…….yet.

Call options are in order here. It will be interesting to see whether there is follow-through tomorrow………

Equity volatility is seasonal. According to a recent study by Larry McMillan: “There is also a seasonality to VIX trading patterns. … You can see several patterns (over the past 20 years). Early in the year, there is typically a small peak in VIX in January, followed by a slightly higher one in March. Then it goes into a decline during the spring and into mid-summer. It probably comes as a surprise to no one that the low in volatility occurs around July 1st of each year. What might come as a surprise though is that volatility typically rises quite a bit during July and August. Then it really gets going in the fall — In September and October, when the stock market typically has major declines. It peaks in October. After that, volatility becomes surprisingly docile for the rest of year, until by Christmas it is almost back at the July lows. Not every year follows the pattern exactly, but most are a reasonable approximation. 2008 followed quite closely, and this year the pattern is typical as well.” So is it time to assume that the VIX will rally according to these past seasonal patterns? Perhaps, but I’d also suggest the possibility, based in part on the ongoing compression of historical volatility, that the VIX might continue to decline to surprisingly low levels – perhaps as low as 20 – before it bottoms.

That is a great analysis David, I appreciate the post. I'll be watching to see how that trens holds up this year.

SM, I am watching the VXO very carefully to see if the pattern fills out like Spread suggested. Last week I went short based on many factors (Insider selling at historic levels, overbought sectors, bearish forming wedges, etc), but so far I am getting my ass handed to me. The one thing that held despite the other indictaors is the VXO, which did not break the bearish resistance line. We'll need a solid reversal to see how Spread's theory hold up, but so far I should have followed his advice. I've read there are a lot of big traders who are getting popped because they sold short too soon. Bottom line is, I will probably lose some money, but not the lesson….

VXO punched well through its down trend resistance line in connection with a new buy signal. Now we'll see just how much fear this market correction will inspire.

VIX also made a buy signal but has yet to decisively punch through resistance. Both are operating on positive weekly momentum and negative monthly momentum.

This is the first time since March that these indicators have broken above resistance. I'd like to see them at 40 or higher. Although it seems counter-intuitive, times of exceptionally high market volatility make for the best buying opportunities.

So if I am understanding this correctly when these indicators are high – high volitility in the market – that is the time to buy?

VIX hit a new sell signal today and interestingly, VXO is right against its up trend (bullish support) line. It will be interesting to see if it can break through.

Now is not a good time to buy stock, so stand by.

As long as VIX and VXO are hovering at relative lows I'll refrain from purchasing issues that are correlated to the broader stock market indices. According to the VXO “indicator” the last good buying opportunity was July 8th. Look at any broad market index related chart to see if that would have worked out.

Meanwhile, someone asked months ago whether you could trade the VIX. At that time, the answer was “no”.

But this is the brave new world of investing; and now you CAN trade the VIX……..with an ETN that began in February…..the symbol is VXX. (Orange is the international color for caution, so conduct yourself accordingly.)

There's a very interesting anomaly presenting itself on the VXX and VIX charts. It's called divergence. You see, the VIX reversed to a column of X's on July 29 while the VXX flashed a sell signal on August 7…..and these charts are supposed to parallel each other. The divergence can't last. Any bets on which one takes the lead going forward?

Have a good weekend.

SMcGuire45 said:

I'm learning about strong seasonal voltility trends right now…is there a good resource out there where one can view the strong seasonal voltility trends on specific commodities?

Sorry there SMcG……..just saw your question.

You can view daily changes in implied volatility for almost all commodities at

http://www.mrci.com

…………of course, there's a fee (14 day free trial) to do this so I don't partake.

Yes, I'm looking forward to a new career in…….journalism. Seriously, we won't be doing “teasers”; and we won't charge $3,000 a year (or even $2,995) to participate (I have to thank the “Martin Weiss thread” for inspiring me to do this because three months ago I'd have said “never”).

We'll feature almost weekly trades in a newsletter/email format. I say “almost” because sometimes Ms. Market doesn't cooperate. Sometimes we will have more than one trade per week, hopefully averaging 50 – 60 in a year.

The idea is to allow traders and investors to learn by doing, with an emphasis on controlling risk so that folks can gain the confidence to trade in any market environment. We'll manage each trade from day one and answer (constructive) questions from clients, posting FAQ's at our website (under construction).

We are shooting for a November start; and my brother (the brains of the business) is working out the details, including pricing.

…..thanks for asking.  

That's welcomed news for sure! You can count me in too…

Post edited 11:19 pm – September 16, 2009 by spreadtrader

Just as a friendly reminder, this indicator (VXO) continues to say that U.S. equities should not be purchased at this time. Rather, I'm continuing to look at puts, currencies (I bought some FXB last week), some foreign ETF's and commodities (although commodities are unfavored). Patience.

Unfortunately, some of us are already heavily invested and looking to sell at the first opportunity (to recoup capital, minimize loss, whatever).

Anyone with capital sitting on the sideline could have come in yesterday (when the x for VXO hit the trend line) and scoop up any stocks and would have come out ahead 5~10% (as we speak). Like you'd said–buy with both hands. I can visualize you doing that now

This reinforced the importance of timing.

If the “x” for VXO hits the trend line indicates a buying opportunity, is there any indication for getting out or buying puts?

From this day hence, I will be watching VXO like a hawk

Jokes aside, each time the x hits the trend line (brl), the next few days always saw stocks rising. It is only the magnitude of the rise. 

There are probably some opportunities left to buy tomorrow but with the 12th anniversary of Black October next Tuesday, I will be real cautious!

smiling2bank said:

VXO could be a good tool for my 401k.  The weekly payroll deduction could go to cash.  When the VXO says it is time, move the cash into the stock funds. 

---

You still need to find a way to tell you when to move out from stock funds to cash