Tuesday, August 5, 2014

VIX Weekly Chart

The VIX is creating more drama these days than a Shakespearean play. The red circles show major market sell offs created by the VIX moving above the 200-week MA. The SPX lost -9% in 2006, -7% in early 2007, -58% for the market 2008-2009 market crash, -17% in 2010 and -21% in 2011. The average losses are -22% with the mildest correction at -7% and the worst correction, a bear market, at -58%. Throwing out these two sell offs at each end of the range, the average pull back is -16% when the VIX moves above the 200-week MA. 

The pink circles show the bear's frustration over the last couple years, continually threatening market mayhem, but instead the bulls recover each time slapping the bears in the face. Here we go again. Who will do the slapping this time? Same-o, same-o, or, do the bears pull out the sword and start slicing bull bodies? Bears win big above the 200-week MA at 17.73. Bulls will stay in the game and prevent a significant market move lower if they keep the VIX under 17.73.

Watch the VIX daily chart, the 200-day MA at 13.57, as highlighted here often, since it will tell you if the stock market bulls are recovering (under VIX 13.57) or not and provide you a heads-up on the path ahead. Type 'VIX' in the search box at the right to bring up prior VIX charts for further study. VIX begins today at 15.12. As long as VIX stays above 13.57, the 200-week MA cross is on the table. If VIX drops under 13.57, the bears are folding like a cheap suit and a move above the 200-week MA is unlikely going forward. The current projection is that the VIX will move above the 200-week MA and a significant sell off in excess of -10% should occur as the days, weeks and months play out.

The green horizontal line at the 37 level clearly illustrates when there is blood in the streets as famous investor Warren Buffett says. This is when you want to be running to the fire as the stampede of traders are running from the fire. The VIX 37 level provides you a way of gauging panic and fear; the depth of the blood if you will. When the VIX moves above 35, you want to be scaling into long positions from a long shopping list for individual names as well as longing the broad indexes. People will be jumping out of windows and panicking above VIX 35 and that creates the very attractive and successful buying opportunities. Buffett is holding a $50 billion cash hoard the largest in his history. He touts the great economy but if it is so great why is he holding all that cash? Of course Buffett is holding that cash so he can implement it once the fear, panic, and blood in the streets appears at VIX 30-ish and higher. If you want to play a long-term investment game, then you should be sitting in lots of cash now waiting to follow Buffett's methodology as described. In the short to intermediate term, the bears want the VIX above the 200-week MA at 17.73 to lock-in market mayhem and carnage. This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here. Consult your financial advisor before making any investment decision.

Note Added 8:41 PM: The VIX finishes at 16.87 with a HOD at 17.14. The 200-week MA is 17.74. Bears have it within their grasp. Do the bears create the long desired market carnage with a VIX above 17.74, or, do the bulls recover, keeping volatility low and moving lower, slapping the bears in the face again?

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