Sunday, July 23, 2017

VIX Volatility and SPX S&P 500 Daily Charts; VIX Historic Low

Stock market history is written each day not only with new stock market highs but with historic multi-decade lows in volatility. VIX drops to 9.36. Traders are completely fearless. Investors drink Fed wine all day buying stocks without a care in the world. Each trader is congratulating the other at how smart they are as stock pickers. One trader puffs his chest out and brags that he is Jesse Livermore incarnate and says the stock market rally will continue for many more weeks and months. He takes another swig of wine.

Another trader exclaims that trading is the easiest thing to do in the world. He told his family that he will retire next year on all his ongoing never-ending profits. Joe, the local cab driver, took his entire life savings and bought blue chip stocks like the guy on television advised. Aunt Martha poured her whole life savings into utility stocks. Life is so simple and care free. The uber low historic readings in the VIX and low CPC and CPCE put/call ratios verify the off-the-charts complacency in markets. No one believes that stocks can ever go down again.

The red circles show stock market tops when complacency is in play. You can never time a market top using low VIX numbers since the VIX can remain complacent for a long time (too long for a short trade to play out). The green circles show stock market bottoms and they are easier to call using the VIX since they are short term events. The low CPC and CPCE put/call ratios are useful for calling tops like now with their low numbers although this is more for VST (very short term) trading.

When the VIX spikes higher especially above 35 you want to start nibbling on longs and getting ready to buy more longs the higher the VIX moves. The elevated VIX represents panic and fear in markets; you want to run into the fire as a trader not away from it. This is when traders are screaming at the computer screens and exclaiming pain and misery. Some traders run to the window and jump out unable to watch their stocks fall anymore; hopefully the window is on the first floor. Of course all this blood in the streets is when you want to go long the stock market, not now with the rampant complacency when everyone is at the party drunk as skunks buying stocks with total disregard for price. 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.

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