Ian Woodward's Investing Blog

A Pause to Refresh

Why all this focus on the VIX?

  1. It is now nearly four months since I put up a blog entitled “One Good Turn Deserves Another” and pointed to Bill Luby’s blog site vixandmore.blogspot.com and suggested there is substantial worthwhile reading at that site.  I strongly advise you that if this subject has peeked your interest you trot over to his site and read among other interesting notes “Ten Things Everyone Should Know About The VIX”.  More importantly, it is obvious that here is a person who likes to measure both sides of the coin and is sufficiently open minded to point to other bloggers who may have similar interests but have different points of view.  He again mentioned this site in his April 14, 2008 blog entitled “Three Top Bloggers Look at the VIX”…and I for one learned a lot from the other two!  My point is that “bloggers” can only feel their work is appreciated if the number of hits at their site continues to grow and that comes from mentions from others including the blogging community. 

  2. My overnight claim to fame as a blogger on the Internet came from the first note I put up on the Hindenburg Omen when the number of hits tripled overnight, and I found a following from Greece, Finland, and as far away as Singapore among others.  However, the sad state of affairs is that despite my efforts to keep you on the right side of the market with several notes per week at critical points in time, my number of hits is back to the normal clientele I can bank on from those who read Ron and my Monthly Newsletter. 

  3. I’m not looking for “attaboys”, but I am certainly looking for positive feedback or other points of view, and questions and occasional thank you notes for all the work I put into this stuff.  There are always the faithful few who take the time to show their appreciation, but it doesn’t excuse the many that don’t.  Maybe I am spoon-feeding you too much and since this is the day of the Internet where everything is taken for granted with little thought of the hours it takes to put cogent stuff together, I should not be surprised that it comes with the territory. 

  4. I will watch with interest in the next couple of months as it will be a year since I first started this effort and true to what I always say “It’s Your Call”, implying that it will be my turn to make that call!  

Now for a further review of what has transpired since the blog I put up a month ago on the VIX:

pause

pause 2 

  • Naturally, the Bears are licking their chops and sharpening their pencils that it is now time to turn to shorting, since there is undue complacency, the put/call ratio suggests there is too much optimism, and the VIX has not only corrected but is a lot lower than previous support levels.  Likewise, it is not surprising that having gone through one resistance level at 2440 on the Nasdaq, all indexes are now reaching the bigger challenge of getting through the 200-dma ceiling, so obviously, at some point there should be a pause to refresh and the Bears will have their turn. 

  • The $64 question at that point will be is it a small correction and the Bear Market Rally continues in which case we can look forward to the worst being over for now, unless there is a major surprise.  The other side of the coin is that it turns down for a deep correction in which case we can look forward to a retest of the lows again. 

  • Meanwhile, we see that most boats are rising, most old Leaders are finding support,  along with many new breakouts from decent bases and fresh leaders, so let the market guide you as to what to do rather than ANTICIPATING what you want it to do.  By all means watch both sides of the coin, but don’t become a jack-in-the-box.    

Best Regards, Ian. 

4 Responses to “A Pause to Refresh”

  1. Theresa Hui Says:

    Hi Ian,

    Although the VIX has been down, it seems to me the volatility in certain sectors has been up. I’ve been shaken out of some of my positions a couple of times. Frankly I don’t think I have the stomach for it any more. Am I the only who feels this way?

    What would your advice be?

    Thanks!

    Theresa H.

  2. ian Says:

    Theresa: It is difficult for me to know if my response is accurate or not, since you did not give me the “certain sectors” you mention. However, Ron showed very well how there is a lot of volatility in some of the more favored sectors and Industry Groups of late. Please look at his note to Jerry Costello for the full answer including pictures on the HGSI Yahoo bb and you will see what I mean. But here is potentially the reason and he said it very well:

    >>>Major rotation happens in groups all the time without having a serious overall market correction.
    The best place to observe the rotation is with the groups in the ranking module. The image below is a two week percentage price change and shows serious rotation in and out of the Chem-Specialty groups over multiple weeks. When a group of stocks is fat with profits and he is overbought, there are few buyers to drive prices higher selling sets in. It is simply the law of supply and demand. When supply surpasses demand, stocks fall and usually fall as a group. Just stare at the ranking module with a 2 or 3 week % price change and you will see multiple examples of this. The second image of the ranking module shows several leading groups which have fallen out of favor quickly.<<< 1. I would suspect that your stock selections are primarily in these groups, and they will always be vulnerable at Earnings Due time. That is when there is the most buffeting for all the reasons I gave in my blog on factors to look for at Earnings Due time. 2. Alternatively, it is not difficult to see that what is up today is down tomorrow and vice versa at a time like this when the under currents of coming out of a Bear Market will be to look for new leadership which has to gradually lift itself out of the doldrums. As such, some have explosive bursts out of the Base with plenty of High Tight Flags before they pull back. Just take FSLR as an example…from $307.80 to $261.12 from hi to lo in two days, 15% down and now back up to $277.50 on the close today. Try POT at $213 to $176, 17% down in seven days and now finding a base between $185 and $189 today. I told you that such leaders will automatically correct 15% to 20% when the earnings are out. But now those who were savvy enough to buy at the low are up 6% in 2 days. Same thing goes for FSLR! 3. You may be chasing breakout stocks. 4. It is better to put these obvious new leaders via recent LLUR action on your Watch List and buy them on pull backs or for the first move out of a long base. 5. Your stops may be too tight. Net-net, do not confuse the Volatility as expressed by the VIX relating to options on the CBOE for the S&P 500 with Industry Group and individual stock volatility. Write me privately on the certain sectors if this doesn’t cover your question. Best Regards, Ian.

  3. David Galardi Says:

    Ian,

    What great advice… tHE VIX discussion is the mumbo we are lloking for these days and the Mamba we fear. I for one am watching the FSLRs of the world, but to chicken to pull the trigger. Stocks are like kids, they through a temper-tantrum once in awhile… but some how we stay in love with them! Of course for me that is not to hard on both fronts… 5 kids/5 stocks… stick to what loves your back!

    David

  4. Paul R Says:

    Ian thanks for the reminder about reading vixandmore.blogspot.com/, excellent reading!

    Paul R

Copyright © 2007-2010 Ian Woodward
Disclaimer: Commentaries on this Blog are not to be construed as recommendations to buy or sell the market and/or specific securites. The consumer of the information is responsible for their own investment decisions.