Thursday, June 2, 2011

Keystone's SPX:VIX Ratio Indicator

Many of you are becoming familiar with the SPX:VIX ratio since Keystone mentions it often lately.  With the pivotal jobs report in the morning, markets should react violently one way or the other, thus, watch the SPX:VIX for clues.

The ratio is now at 72.58. The broad markets continue to top and roll over, thus the critical ratio level to watch is the 68 level.  Once the SPX:VIX ratio falls under 68, the indexes will experience a significant sell-off like the Wednesday sell-off.  Typically the Dow Industrials will give up between 100 and 300 points once the 68 level fails.

Do not be relaxed about a 72 handle, this ratio can drop like a rock, very fast, so watch it in real time during trading hours.  If the market bulls can keep this ratio above 68, the recent selling will not amount to much in the grand scheme of things.  However, if the 68 level is lost, perhaps tomorrow on bad job news?, the selling will accelerate significantly.  Get a good nights sleep, you will need it tomorrow.  Watch this ratio like a hawk in the days ahead.

The Market Turn Signal page has additional information.

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