Lose Yourself to VIX

If this thing breaks 20... yikes.

Disclosure:  Yeah, I own some puts (on other stocks).

Sp500 & VIX

ESH0

As the SP500 index started the year with a 1113.25 low on Jan 4th, the market rallied to 1150 by the second week of the year. As the market failed to hold above 1150, it sold off and broke the lows from the first day of trading during the 3rd week of January. These Jan4 lows have now become resistance creating a right shoulder in an larger "h/s" formation. This recent test of 1113 has also created a baby "h/s" formation within this right shoulder (1092 neckline 1113 head). Bulls will need to clear this downtrend line from the head to the right shoulder to attempt to break the head and violate this "h/s" pattern. Bears will look for a neckline break as confirmation of "h/s" targeting the low 900s.

$Vix

Island reversal created in the VIX on 01/11/10 occured as volatility closed higher after making a 22 month low. This reversal may end the 13 month downtrend in volatility however volatility will need to stay above the January lows in order for this reversal to be considered.

Past performance is not indicative of future results. The risk of loss in trading futures and options is substantial and such investing is not suitable for all investors. An investor could lose more than the initial investment.

VIX Filled the Gap

I thought it was interesting that the VIX went back and perfectly filled the gap it made on the Dubai panic last week. I'm not sure if the concept of a "gap fill" even makes sense for the volatility index (VIX) but heck, how much "sense" does it make with stocks either. Fact is, a huge gap showed up in the chart and precisely after it was filled the VIX made a huge move higher. Maybe we shouldn't be suprised that the VIX dropped so much following that gap up, after all, the S&P 500 and the Dow Jones both made new 52 week highs today. On the other hand, thats a pretty huge and seemingly significant divergence that the S&P 500 made a new cycle high while the VIX made a low which was 3% higher than its cycle low. Thats not necessarily a sell signal for the S&P but its a big red flag.

Point is, if the VIX were a stock I'd buy it with a stop at today's low and a target at the 200 dma (currently about 30). It will be interesting to see if this turns out to be a long term bottom for the VIX following two tests of the 20 level. A sharply rising VIX would be bearish for stocks and extremely bullish for put options. However, a volatile VIX is a headache.

Disclosure: I own SPY puts

S&P 500 is more volatile than the Nasdaq?!

A new and unusual trend is developing with the nasdaq volatility index falling (VXN) below the S&P 500 volatility index (VIX) as seen in their ratio (see below) being less than one. Is this the beginning of a period in which we see more volatility in the larger cap industrials, I doubt it. More likely its just due to a recent repricing of risk in the financials which are a much larger component of the S&P. This is telling us that in general buying options on nasdaq stocks is cheaper and more attractive than on S&P stocks. Or conversely, selling options is more attractive on the S&P. Anyhow, this is a rare event historically and worth thinking about in my opinion.


Disclosure: I own QQQQ puts