Ian Woodward's Investing Blog

Whither Goes the Volatility Index – VIX?

  1. I am grateful to my Finnish friends from kestustela.kauppalehti that have pounced on an earlier blog of my musings on the “Long Road Back for the S&P500 written on March 23rd under Happy Easter Wishes.  Unfortunately there is no English translation on their site, so I am not sure what excited them to take a peak at my blog, but many thanks to all of them. 
  2. Here is a mailbag question from one of our Newbies at the March High Growth Stock Seminar, “It appears that the VIX has rebounded and not broken down thru the resistance. What do you think that means for market direction? Has it rebounded enough to continue the decline? the Newbie-Pete 
  3. Well done, you are learning fast and have now cast off your “Newbie” handle and fresh from the March Seminar, I dub thee “Oldie Pistol Pete”…you are one sharp dude, as my sons would say! 
  4. Everyone on this earth should be asking the same question, but you have come to the right place to find the answer.  Friday was a major set back for the Bulls, but the game is not over for them yet.  The GE earnings disappointment really took its toll, and any more of that scenario this week will certainly cause the rally to fizzle when it was looking so promising.   
  5. Now then, to answer you directly, it is close to rebounding enough to continue the market decline, but it is too close to call.  The VIX is currently still below the Bandwidth and it needs to break above.  Where do you find that you will surely ask?  It is all in the High Growth Stock Investor Software as the only place to find the answer, and we have made it easy for you if only you can remember to go to the right place.  Go to my trusty Chart View which is the standard I always use along with 9/10th of the people out there and that is the “4 Ready, Set, Go New, Ian’s BullsEye” Chart.  It used to be the 4b chart, but is now the first one in the series of 4 charts.  You will need to bring up “Major Market Indexes” in the Chart View along with selecting the Market Volatility Index and there before your beady eyes you will see that in the Ian’s Bullseye Window the second one down, the green line is BELOW the Red.  If you bring up your Data Window you will see that BB %B is 0.3444 and BB Bandwidth is 0.4576, so still below, as shown in the chart below:

vix 

  • And now the $64 question is “Ian, I want to be ready to go short or go long on Monday morning and I am in the process of getting my candidate list together right now…can you Help me? 
  • I won’t let you down but nobody knows for sure.  However, I will give you the conditions for the VIX for tomorrow and the week ahead that will guide you as to whether the direction is sideways, up or down and then all you have to do is sit back and enjoy! 

Conditions for the VIX for tomorrow and this week: 

  1. The minimum requirement for the VIX is a reading of 24.10 from its current reading of 23.46 for the %B to just be equal to the Bandwidth, i.e., green line touching the red line.  That will spell hope for the Bears and further concern for the Bulls. 
  2. The ideal requirement for the VIX from the Bears standpoint is a “Little Kahuna” of +0.25 up on the %B which would require the VIX to jump to 25.95, which would be tantamount to a major down market tomorrow and would be pretty obvious.   
  3. The ideal requirement for the VIX from the Bulls standpoint would be a “Little Kahuna” of -0.25 down on %B which would require the VIX to fall to less than 20.20, or essentially very close to the lower Bollinger Band to continue to give major hope for the rally to continue. 
  4. So the answer is that anything up big between 23.46 and 25.95 for the VIX, the Bears win.  On the other hand, if the VIX goes down big between 23.46 and 20.20, the Bulls smile with the bull rally continuing.  Anything minor in between, we go sideways.

Stay tuned Pete, as I must now feverishly turn my attention to the newsletter where I will focus on the value of the Kahuna in these difficult times.  But the most important priority for this afternoon is the Masters Golf Tournament at Augusta 🙂  Best regards, Ian

 Late Breaking News!  I have had a few comments from viewers and I refer you to the response I made to Dave in the Comments Section below to see my latest thoughts since posting this blog.  Net-net, the VIX %B has not even broken through the Bandwidth which was the first target I set, so we sit and wait!  Meanwhile enjoy the Hot Wolf Packs.  Best regards, Ian.

7 Responses to “Whither Goes the Volatility Index – VIX?”

  1. Jin Says:

    hi ian, I am from singapore. I am very amazed with some of the things that you wrote on your blog. I actually discovered this blog back in oct with my search for the Hindenburg Omen confirmation. I actually saw the signal through yahoo finance and some other website for the oscillator and MA. You confirmed my gut feeling that the market was heading down pretty badly. I dont have a proper charting tool to identify the signal. I would like to know what charting program are you using? Another question is does Dow even have gaps? The chart that I use at my brokerage centre shows that dow opening for most of the days was pretty close to the closing of previous day. For eg. when dow futures show that it is down 100 for the opening at fair value, the chart will not show a gap down to -100 as opening. It will start the opening at down a few points instead. Is that similar to your chart? Thanks

  2. dave Says:

    I’m getting concerned about the lack of volatility which like inertia can last longer than expected. There has been little volume on recent rallies as should be expected in a bear market but, also, no follow thru on declines, e.g., after GE earnings.

  3. dave Says:

    BTW,Ian, do you place any significance in the Summation Index turning down ? Thank you

  4. ian Says:

    Hi Jin: A big handshake all the way to you in Singapore! I am sure that you have read that we have a complete Suite of HGSI Indicators that many find are second to none, and that includes the Hindenburg Omen, which has caused quite stir around the internet. My blog views shot up three-fold when I first mentioned it.

    You will find a Free Trial of the HGSI Software I use at the top right hand side of this message, or any of the blogs I write. Just click on the “Click here to Order” and follow the instructions.

    Now to your other point…it is true that one does not see many large Gaps up or down on the DOW when compared to the Nasdaq. My associate Ron brown feels it is because they do not open all the stocks simultaneously so you will not often see large gaps on the DOW. Gaps are far more noticeable on the Nasdaq.

    I’m glad to make your acquaintance and hope you enjoy the blog and the software. Best regards, Ian.

  5. ian Says:

    Hi Dave: You are dead right on the VIX essentially going quiet now in a trading range for several days. It started to poke its head up, but never quite made the target I set for it in the note above of a modest increase from 23.46 to 24.10 for it to start to show signs of a breakout from the doldrums.

    I have found that a very important hurdle is that the Bollinger Band %B of the VIX Index, must get above the Bollinger Band Bandwidth with AUTHORITY before you will start to see any Fear coming back into the market (the green line coming above the red line in the chart above as I showed ringed with a dotted blue circle). That is why my other two targets I gave you was to look for a Kahuna move in either direction, i.e., a minimum of 0.24 in %B 1-Day Change before you really get to feel the Volatility. The longer the %B of the VIX stays BELOW the Bandwidth, the more the likelihood that the Bulls are in control and vice versa.

    You are also right that the McClellan Oscillator and Summation Index are important factors to watch for confirmation of which way the wind is blowing.

    This is Earnings Report season so one can get yanked around from Pillar to Post depending on which early reports catch the “Street’s” eye. Last week it was GE, and you are right that although it caused a major hic-cup in the progress of the Bull Rally in a Bear Market, the VIX really didn’t turn much of a hair, i.e. complacency in a word! However, as I write this, INTC has just announced its earnings and the street likes it. Tomorrow we have IBM and Ebay, so there are another couple of “Halo” type stocks that the Street loves to act on, so watch how the wind blows in reaction to these announcements. Its Options Expiration week as well to come so that adds another layer of uncertainty to the equation.

    From what I see of this market, the day trading bulls are feasting on a couple of hot Wolf Packs, ie, Agriculture and Chems Specialty, with even the beaten down Transportation – Shipping showing signs of perking up again and until we see breadth in terms of all boats rising with plenty of New Highs swamping the number of New Lows we will dawdle around until there is another major negative surprise to take the market down, and I don’t have to spell out the littany of problems the FOMC is faced with between Inflation, the weak dollar, etc.

    The longer this market goes sideways, the market has a chance of repairing, but with the daily volume being relatively low, there are few players willing to call it for a strong push to the upside.

    Best Regards, Ian.

  6. blaine Says:

    Hi Ian,

    I have been reading your blog for many months and have a quick question. Are you still paying attention to the potential Hindenburg Omen signals that could be triggered in the coming days? The New Highs/Lows almost meet the criteria today. The 10-wk MA is flat (or perhaps rising). However, the Oscillator is still positive. It seems to me we are very close to an Omen. What are your thoughts?

    Thanks,
    Blaine

  7. ian Says:

    Hi Blaine,

    I am glad you like my Blog and are zoomed in to news on the Hindenburg Omen. We automatically keep a beady eye on the Hindenburg as one of the Suite of signals we watch on a set of charts.

    It takes seven items for the Hindy to trigger, so these are rare beasts. I may be wrong, but it would be an unusually bullish day for it to trigger on all items on the same day and if then it will probably be a spurious trigger. You will recall that this indicator must have at least two signals for it to be valid, and more often than not one needs over four before things are getting to the critical stage. My guess is that we will not see this indicator fire until we are well into a strong Bull Rally again, and I would be really surprised to see it hit again before 2009! But we are fortunate to be able to observe it automatically on our screens, so you will know when it hits for sure.

    Best regards, Ian.

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