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VIX Reversal Signal

VIX Reversal Signal

by The MoleJanuary 26, 2009

UPDATE 12:52pm EST: Since I have to post for two now I will start to post some analysis during the day as well. This way I don’t get stuck with having to post in the afternoons every single trading day.

Something I completely snoozed on was a clean bullish VIX reversal signal last week:

Remember those rules that Berk taught us back when:

For a $VIX confirmed signal you need 3 things:

  1. a close outside of the 2.0 Bollinger Band (20 day, SMA
  2. a close back inside the 2.0 Bollinger Band – this issues the signal
  3. a higher close (sell) or lower close (buy) than the close of the day back inside the 2.0 Bollinger Band – this confirms the signal.

Once you get those 3 things a major reversal usually occurs within the next week. The sell signals are far more accurate than the buy signals.

Okay, we got a buy signal and so far it’s holding up. The wave count I slapped on also seems to point to a scenario where we push higher in equities, and then drop massively as Mr. VIX embarks on its 3rd wave to the upside.

I love it when things all come together – let’s keep monitoring this situation closely. I’m waiting for the lower band of the Bollinger band to swing up towards the price (and VIX to drop lower), giving us hopefullly the opportunity to see a reversal sell signal (i.e. buy on the VIX).

UPDATE 3:09pm EST: If I hate anything more than expiration weeks, it’s FOMC weeks. You can basically run errands on the days before because you will not get resolution in one direction or the other. I picked one of those short VTAs but got kicked out with small profits. For now I’m just sitting and watching as I’m sick of trading those 0.5 signals. Just look at the Zero line of the recent week – it’s completely flat and I will ignore any signals below 1.0.

Anyway, this is what the turtles used to call ‘ping pong tape’ – so, unless you’re a daytrader sit back and watch the show. And don’t expect any clarification until tomorrow when the whole FOMC kabuki theater reaches its finale.

About The Author
The Mole
Mole created Evil Speculator amidst the chaos of the financial crisis in early August of 2008. His vision for Evil Speculator is a refuge of reason, hands-on trading knowledge, and inspiration for traders of all ages and stripes. You can follow him and his nefarious schemes at the usual social media waterholes.
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