VIX Signals a Top ~ The Risk Averse Alert

Wednesday, January 13, 2010

VIX Signals a Top

A Seeking Alpha article by Chris McKann of optionMONSTER points out that, the ratio of the 1-month volatility index (VIX) and the 3-month volatility index (VXV) "hit its lowest level since May 2008." The article also goes on to note "the lows in this ratio have come at market tops—in December 2007, May 2008 and August 2008."

Of course, it comes as no surprise here a top signal is registering via the VIX. Yet duly note that, the 1-month/3-month volatility ratio "hit a higher low back in July of 2009," too. In other words, given the entire post-March '09 trend's tendency for adding suckers to mainstream consensus (now including perma-bear James Grant), one might suppose this indication of a top might persist for a brief time.


Indeed, the VIX, itself, has come down to the same levels reached when the S&P 500 peaked in October 2007, and again at the end of the March - May 2008 counter-trend rally. Now, at this point it would come as no surprise were the VIX to better these prior readings. Coming at significantly lower S&P 500 levels than those previously, a VIX divergence would be most fitting the Elliott Wave outlook here.

Fast Money
* * * * *

© The Risk Averse Alert — Advocating a patient, disciplined approach to stock market investing. Overriding objective is limiting financial risk. Minimizing investment capital loss is a priority.

Analysis centers on the stock market's path of least resistance. Long-term, this drives a simple strategy for safely investing a 401(k) for maximum profit. Intermediate-term, investing with stock index tracking-ETFs (both their long and short varieties) is advanced. Short-term, stock index options occasionally offer extraordinary profit opportunities when the stock market is moving along its projected path.

Nothing is set in stone. Nor is the stock market's path of least resistance always known. More often than not, there are no stock index option positions recommended.

There's an easy way to boost your investment discipline...

Get Real-Time Trade Notification!