On the Paradox of VIX Levitation ~ The Risk Averse Alert

Monday, February 09, 2009

On the Paradox of VIX Levitation

Not sure you heard, but during tonight's Fast Money "Word on the Street" segment Pete Najarian confirmed my observation on Friday suggesting the reason why VIX stubbornly held up despite the day's market gains was due to near-the-money Put options being purchased to hedge long equity positions.

This continued today. Indeed, despite today's relatively flat trade the CBOE Put/Call Ratio fell from Friday's 0.71 to 0.67. Likewise, the VIX rose slightly. So, all the more it appears there's a floor under the market.

NYSE 5-min

Above, you more or less see the typical price-RSI configuration associated with an Elliott impulse wave (i.e. five waves) higher, appearing much as I indicated possible Saturday. This applies to the 5-wave advance from last Thursday morning (2.5.09).

The question now is whether the market's advance since last Thursday is but the first wave (itself consisting of five waves) of a larger move higher slated to take major indexes to new highs, post-November '08 bottom?

Well, maybe it is or maybe it isn't. Either way, though, (technically speaking that is) the market appears poised to move considerably higher still.

Yet straight ahead — tomorrow — it looks like either a whole lot of nothing might be in store, or possibly a touch of weakness until a positive story can be spun on the apparently measured announcement Treasury Secretary Geithner is to make at noon regarding how the remainder of the TARP will be used.

I thought the President's stating during tonight's press conference his understanding that, our financial crisis began with a banking system leveraging shaky assets 30-1 was most impressive and encouraging. For the sake of moving in a direction making stock market investing a safer proposition, such political posturing as embraces plain fact is a most useful beginning.

Fast Money
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