Friday VIX Roundup

• Posted by Adam Warner
• on January 15th, 2010

So even though the VIX did not stage that magical reversal posited by the Evil Speculator, we do have some interesting points here.

Remember the “10% below the 10 Day SMA” rule? If the VIX gets 10% above (below) the 10 Day Moving average, then it’s considered overbought (oversold) and should mean revert, which implies the market itself should explode (implode).

We’re one more blah day from going 10% below the 10 Day SMA. And with a holiday weekend coming up, not beyond the realm of possibility we see it today. So look out below?

Well, here’s the problem. This indicator does not do well as a countertrend signal. In other words, an overbought VIX within a broader VIX downtrend can often give a good entry point for a market long. An oversold VIX in an already downtrending VIX though does not give you much. Throw in that complacency can linger and you get maybe a little stall in a rally if you’re lucky (well, and looking to sell). And we still haven’t solved the pesky problem of the lack of volatility in the market itself. The VIX can still decline another few points before that lines up. Not expecting that to happen so fast, but given time and action like this, we’ll see VIX a bit lower.

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