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VIX Sell Signal Versus Equities
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VIX Sell Signal Versus Equities

by The MoleMay 17, 2018

So the other day the VIX issued a sell signal, which is to be understood relative to equities and not the VIX itself. Which means after a sell signal you either go long the VIX or short equities, and it’s the other way around for buy signals, which by the way have been the norm over the past eight/nine years. In case you require a reminder as to the rules:

For a VIX confirmed signal you need 3 events:

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

Once you get those three events a major reversal usually occurs within the next week.

So let’s take a look at the recent action here. We have a close outside the 2.0 Bollinger – check. Then we have a higher close inside the BB – check, followed by quite a push higher and a close > the previous one. Which means a bonafide VIX Sell signal is active.

Now before blindly jumping on those rules and backing up the truck to load up on short positions, the question you should ask yourself is ‘how reliable are these signals’?

Well, the BUY signals have been very reliable, meaning we’ve enjoyed a success rate of about 80% since after 2010. There rarely have been SELL signals since then and when they happened they often failed or only produced limited upside.

However something changed early this year. We got a VIX Buy signal which failed almost immediately after the VIX continued higher and basically invalidated the signal just three sessions after it was issued.

Then in April we got our first VIX Sell signal which kind of worked but didn’t produce a big sell off in equities. And now we just got issued another one, so what’s the proper course of action?

I’m looking at the E-Mini volume profile and what stands out immediately is that hue volume hole right above this week’s highs, i.e. > 2740. I told you all last week that it would be tough going once we arrived there.

So as you can imagine I’m a bit conflicted as I have been trading this market higher quite nicely and just based on the price action decided to re-enter where I was stopped out yesterday near 2.3R in profits.

The daily panel looks like it’s primed for a txt of the 100-day followed by a short squeeze higher. But then again – this would be an awesome spot to stick it to the bulls, especially given the VIX signal.

So what I decided was to keep my long position but flip it for a short should I get stopped out. This may actually cost me 2R in profits if I get whipsawed which is why I only deployed 0.5% (basically 1/2 my usual R size) for this long position.

Another reason why I’m now considering the short side is that the 100-day BB is now starting to flatten and may actually turn DOWN if price is unable to shake off gravity. If that happens it opens the door to a world of hurt for equities.

Speaking of a world of hurt – bonds!! It has now dipped through weekly support and there’s nothing but air below it. First weekly support cluster is near 137’16 plus minus a few ticks. Monthly support roughly matches up there so I wouldn’t be surprised to see a spike low there a few weeks from now.

I’m happy to announce that I was stopped out of the EUR/USD. SAY WHAT?? Well, you may remember that I had an inverse campaign going courtesy of the AUD/USD and I knew one of them would end up being shafted. Plus it’s no big secret that I want to see the EUR/USD at the woodshed for an extended visit.

There is just one problem – the AUD/USD didn’t bloody move! So I’m out 1R and the damn Ozzies refuse to do their part. We all know you just can’t trust them, especially if they are from Brisbane 😉

By the way I actually had a choice between the AUD and a long on the USD/JPY. Unfortunately I picked the wrong one…

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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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  • https://evilspeculator.com Sir Mole III

    Guten Morgen!

  • ridingwaves

    Buenos Dias senor Mole….
    Tesla will need to raise $10 billion-plus by 2020: Goldman Sachs
    when the gods of finance speak, do angels listen…

  • BKXtoZERO

    Good Morning Sir. Bonds sure did get hurt.

  • ridingwaves

    LOXO and SPPI so far are the winners in release of ASCO abstracts last night…..
    biotech might be one of the green market leaders for a bit

  • Ronebadger

    I’m not thrilled with the follow-up to the VIX signal…so far…

  • BobbyLow

    Wie gehts Herr Mole?

    I remember following Vix Buy Signals in 2010, 11, 12, etc. And yes, the Buy Signals all seemed to work quite well back then while most Vix Sell Signals failed. I wonder if the Buy Signals worked and the Sell Signals failed primarily because we were in the beginning of a raging bull market. And now the buy signals are beginning to fail while sell signals are beginning to work because we are coming to the end of the mega bull market.

    In other words, I question the efficacy of Vix Buy and Sell Signals as a tool and would suggest that any positive results from them are purely coincidental. I also think it’s the market leading the way while vix signals go along for the ride where we can point out after the fact that this one worked and that one didn’t.

    JMHO

  • ridingwaves

    Damn so cognizant this AM BL….us west coasters are still pulling eye burgers out….I think you can add VIX buy signals were going to work no matter what with QE intention heavily tied to taming vix, why take out puts when the fed is taking out calls..

  • BKXtoZERO

    for the signal to fail completely does just another touch outside BB do it? or only a close below negates it? I am giving it one last try at 2730, TVIX 5.05 intraday. Other entry 5.3 avg. https://uploads.disquscdn.com/images/99492d1e6c88c716311d13cdc9bf8218bab193724758703ec601e4b22dd1d78d.jpg

  • Ronebadger

    For it to fail…it needs to close below the lower BB again…then you’d have a new Step 1. Or, as Mole indicated…there’s about a one week window after Step 3 for the signal to pan out.

  • BKXtoZERO

    if it fails I guess we go long NFLX at 330

  • Darrell Osgood

    Morgen, schoner.

  • BobbyLow

    Things that I’ve lost money on really grab my attention. 🙂

    BTW, I’m getting close to a buy on Wheat. WEAT price seems to be lagging a little behind the Futures price as of this moment. I’m interested to see if the price on the Futures holds at the 2:20 PM Close. I’ll probably be a buyer if not today probably sometime this week if price continues to get stronger and is able to hold its strength.

  • BKXtoZERO

    VIX is sitting on the 200 day line rt now at 14.2. It dipped below, went above, now needs support on it.

  • daverg

    “hen in April we got our first VIX Sell signal” the three conditions stated above did not appear to trigger this as a sell signal.

  • daverg

    and yesterday they sucked the volatility out of the market, relative to major indices lackluster moves. Which may lead to a bounce today.

  • https://evilspeculator.com Sir Mole III
  • https://evilspeculator.com Sir Mole III

    We should run some statistics on that, you’re right. I would volunteer but am so buried in work that I have hardly enough time to post here. To give you an idea – I was looking forward to a trip to Austria this May but simply do not have a week to spare. So if anyone else is willing to step up and produce some stats it would be appreciated. Good exercise it is I may add – if one wants to be a trader 😉

  • https://evilspeculator.com Sir Mole III
  • https://evilspeculator.com Sir Mole III

    I think the problem that most people have is that they look on the wrong side of the BB based on the term ‘sell signal’. It’s confusing I know…

  • Julie 35 – 25 – 36
  • Mark Shinnick

    A increase in equity market signaling begetting uncertainty I believe is itself a type of signal indicating importance of the time period. So, I step back to take in other market information (like the behavior of other market models) not integrated into that model. My short miners has been triggering, as has long $, short real estate, as have the rate instruments over the past months now. Whatever is happening in this 36 year change of trend has been in motion for all to plainly see….yet we tend not to see it at that time because shorter term signalling becomes fouled. Under this trend change thesis, for equities, recent volatility crushing may only be a shaking-out of too-early bears.

  • BKXtoZERO
  • BKXtoZERO
  • BKXtoZERO
  • BKXtoZERO

    very Yoda like thinking

  • BobbyLow

    I’d volunteer myself but I haven’t traded equity indices for a long time and don’t plan to do so anytime in the near future. Running some stats on this might be a worthwhile exercise for someone who is actually using VIX Signals currently.

  • Ronebadger

    but that sell signal worked for a week or so

  • BKXtoZERO
  • http://gerb-reloaded.blogspot.com/ Gold_Gerb

    Unstoppable energy,
    even Chesapeake, a known dog..is having a good week.
    [CHK]
    http://stockcharts.com/h-sc/ui?s=CHK&p=W&yr=3&mn=0&dy=0&id=p02914617591

  • Julie 35 – 25 – 36

    SPX Patience Bears … I have the patience of Job
    JULIE

  • Mark Shinnick

    Yeah…maybe Art of War too; the best battles include those which are avoided.

  • BKXtoZERO

    Were is the ichi cloud level of death today for ES? 2750?

  • Julie 35 – 25 – 36

    BKX I do not have a chart ES
    JULIE

  • BKXtoZERO

    I see what you mean. Lots of work. I have to head into my actual work but will look over the weekend. I do see that in the last 10 years, VIX spikes, even when squashed, yielded another spike weeks to a month later, UNTIL 11-2016, then it was death for VIX fans

  • http://www.captainboom.com/ captainboom

    I’d be willing to go to Austria for you 😉

  • HD

    Same level, looking left. $SPX has spent very little time above. If all the highfalutin set ups have your head spinning. This level IMHO is key. https://uploads.disquscdn.com/images/4574651ec4e5ac9d1e730a07dc68c164f8eee2851f6a6440dc2f948b6facac48.png

  • HD
  • HD

    add 1 more layer of probability. Elliott Wave…. oh never mind 🙂

  • Julie 35 – 25 – 36

    HD I think you see what I see …. !
    JULIE

  • HD

    EW currently has too many options, it’s in the backseat for a few miles.

  • HD

    Is that an EW count 🙂

  • Mark Shinnick

    Interesting. Does EW have sort of a oscillation between too many v. relatively few options?

  • HD

    I think so. I quantified 2594 almost immediately. That rally was supposed to be corrective but quickly turned impulsive(5 waves vs 3) that is enough to keep me objective and open to another option, just like when a trend changes. Quantified the 2742 almost immediately too. This wave will either be 3 waves, buy!, or we set off on a new pattern. The odds are too low to follow it as an EW pattern at this moment in time.

  • https://evilspeculator.com Sir Mole III
  • https://evilspeculator.com Sir Mole III
  • Julie 35 – 25 – 36

    USO The bearish rising wedge with a pullback from upper channel ….. Patience ! JULIE https://uploads.disquscdn.com/images/04d20c806d180f01c9257e4b945a47e3ab4d08e0cc7cd5150ff740926c603786.png

  • ridingwaves

    revising WTIC to 90 plus when this is all done….but I’ll be out at 74
    why bet against this chart
    https://uploads.disquscdn.com/images/dc083dd4a9fe95f7e5a3a677696d2cad4464759eff692c97a9edbc861ed69687.png

  • ridingwaves

    your patience is causing bear doctors to call in sick….too many clients lately…

  • Julie 35 – 25 – 36

    I talked with a lawyer friend … It is perfectly legal for a corporation to short a competitor ….. Now a corporation buys back their own shares so the insiders can sell into it knowing of a Dumpus while shorting a competitor knowing it will dump with pin action. Guys we are in the wrong business Too Much !
    JULIE

  • https://evilspeculator.com Sir Mole III

    Soooo… if I understand this right. If my company is having a horrible quarter I cannot sell shares as that would be insider trading. BUT if i suspect it takes the entire sector down with it I can sell my competitors? Interesting….

  • http://gerb-reloaded.blogspot.com/ Gold_Gerb

    INTC just came out with an 8th gen chip.
    maybe AMD is ripe for a bus?

    http://stockcharts.com/h-sc/ui?s=AMD&p=D&yr=0&mn=9&dy=0&id=p41466052269

  • ridingwaves

    actually some companies short the competitor before they buy it…..win win…

  • ridingwaves

    Fed speaker news fodder:
    Fed’s Kashkari laments lack of affordable housing but doesn’t see bubble

    from the guy that helped banks walk away free from their dirty big hand in all this and who also worked at GS…….too funny

    why can’t fed folks die faster than good men….

  • Julie 35 – 25 – 36

    Yes Chief Exactly….. In their financial statements under investments A corporation can legally short a competitor ; buy a competitor and sell the competitor Unbelievable but true
    JULIE

  • http://gerb-reloaded.blogspot.com/ Gold_Gerb
  • ridingwaves

    ugghhhhhh, pictures of greed….pigmen a cometh

  • Julie 35 – 25 – 36

    SPX Short (yesterday at the close) now in the money… Initial target the confluence of the 21 and 55 ema’s 2683 – 2688 which correlates with the upper cloud boundary SPX has also broken below it’s 5 ema . The close will be important as it must close below the 5 ema approx 2714
    JULIE

  • Edgy

    Hello, All! Been super busy this Spring, hoping to to hang around more often soon. No one’s going away in May, right?

  • BobbyLow

    We’re pretty much on the same page and I’m also presently long. Being on a faster time frame I might get in a few shorts along the way but I think we are going to be royally screwed at the gas pumps in the foreseeable future. $90 is a definite possibilty. Think about it. Oil Companies and oil buyers happy, Saudi’s and the rest of the ME happy, Russia happy, Shale drillers happy.

    Ultimate consumers, not so much.

  • ridingwaves

    opex shenanigans this week….a good study would be to see if not trading during opex week would deliver different data sets….

  • Julie 35 – 25 – 36

    RW Monday’s following OPEX are usually negative. Expect some volatility with OPEX
    JULIE

  • ridingwaves

    look at the last time WTIC had the 100 and 50 above the 200, almost 3 years ago….crude is just too good of an inflation creator for the fed via it’s MM relationship to push up. It justifies their madness of the last 8 years…..they are now downplaying inflation much to the chagrin of the sheeple, me and you, because they want more of it, keeps markets elevated, allows dollar to do it’s thing via oil backed dollar……

    I know we trade it differently but you have a better set of rules,markers on the turns, I would just get chewed up…so lets just celebrate the wonders of the fed…..FED Almighty…

  • Mark Shinnick

    Ok. This seems to be an environment where a variety of systems and methods are seeing injection of uncertainty, or indications of low probability.

  • Mark Shinnick

    …not around here, hopefully.

  • Julie 35 – 25 – 36

    HD The bounce from 2702 — 2732 was corrective as I suspected. That is why I did not cover the short
    JULIE

  • Mark Shinnick

    Some of my models indicating spooky heads-up; short miners being one of them. The energy stored for a true metals move is being disclosed in objectives now becoming more clear. Do your chart homework.

  • BKXtoZERO

    RW post today way at the bottom said he was in UWT at 12.14, now 40! that is a lesson on being right and holding Sir! amazing trade!

  • Julie 35 – 25 – 36

    IMO The triangle has never been completed per previous posts. The correct trend lines are shown (heavy dotted blue lines) with a downtrend line (lighter blue dotted line) IMO completing D leg of triangle.JULIE https://uploads.disquscdn.com/images/5ab14ea109344a7d5496cf1ee55bc4d1519d4f4eee67af6bd9d39b0c3fff6d64.png

  • Junior buffett

    Boss, where do we stand on VIX sell signal? Is it working? thx

  • BKXtoZERO

    that was discussed first thing this AM at bottom of post. Signal is alive, not dead til another close out of BB. That said, many unhappy VIX fans at the performance thus far and people wondering about the track record of said signal.

  • BobbyLow

    I wish I had RW’s patience and perseverance.

  • BKXtoZERO

    there is value in each approach.

  • ridingwaves

    well, it was fraught with risks and trading lows and highs, BL can do that, I’m not good at that….but as my grand pappy said long ago while standing in one of his oil fields in Santa Fe Springs, buy low and sell high…..oil will always go back up…

  • Julie 35 – 25 – 36

    USO 5 ema at 14.40. today’s low 14.40 …. hang in their dipsters — You going to be bag holders
    JULIE

  • Julie 35 – 25 – 36

    SPX I want a close today below 2717 preferably 2714
    JULIE

  • Junior buffett

    2712 would be better…what you are targeting Julie?

  • ridingwaves

    I don’t think you need it BL…you got this..
    I did offer up a really beautiful long term opportunity for you rats in a comment not to long ago….here’s hoping some of you are in for the ride….

  • Sharon

    goodness, less than 30 min to go and we have 2717.58 and still moving up and down.

  • BKXtoZERO

    I was loaded with UWTI ON the lows and didn’t let it ride. I had your same exact long term view of oil, but lacked patience as it was trading capital, not an investment. I guess I enjoy scraping for 0.70 cents or something. Silver right now looks same to me here somewhere soon. I would like to put a sizable position on and walk away, but that ties up trading capital so same old spot for BK.

  • Julie 35 – 25 – 36

    Hi Junior Initial target 2683 – 2688 below 2683 then 2678 IMO the triangle still in play and completing D leg. Actually longer target approx 2600. E legs often go half way and reverse and that would be approx 2678. I detest triangles and positions are very small
    JULIE

  • ridingwaves

    actually the one thing long term investing does offer that short terms don’t are capital gains tax savings….

  • Junior buffett

    Thank you Julie!

  • BKXtoZERO

    Out of TVIX day position, 5.05 to 5.10, eating taco bell today. Leaving 1R on from 5.4

  • Julie 35 – 25 – 36

    Shorting BAC Targets )1) 30.44 (2) 29.90
    JULIE

  • BobbyLow

    Julie with all due respect, the market doesn’t care about my 40 SBB, 20SBB or your 5 EMA. We can use these averages as an (individual lens) to the market for us to make (individual decisions) whether to buy or sell but the market is not looking at your 5 EMA or my 40 SBB and saying oh, oh Julie and Bobby have these averages pegged and there are highs and lows at these averages so we need to sell or buy now. IMO, it just doesn’t work that way.

    If this was the case, than every traders averages and their different highs and lows of many different time frames would all have to trigger no?

    And then we have that thing called probabilities of an occurrence coming into play. .

    Oil could tank $3.00 tomorrow or it could rise $3.00 tomorrow. I just don’t know. We can have an educated guess based on our positions but that’s all.

  • Julie 35 – 25 – 36

    SPX C’MON A close below 2716.94 You can do it Bears !
    JULIE

  • Julie 35 – 25 – 36

    BL I must go by my charts the 5 ema is important as bounces pattern recognition as well as bounces off the 21 ema. and 55 ema.
    JULIE

  • BKXtoZERO

    it’s too easy for them to bang the close and paint the tape…. probably meaningless.

  • Junior buffett

    doesn’t want to go down, stuck at this level since last 30 min…phewww

  • http://gerb-reloaded.blogspot.com/ Gold_Gerb
  • Julie 35 – 25 – 36

    At least it closed below 2721.66 Bullish above 2721.66
    JULIE

  • Julie 35 – 25 – 36

    USO the 89 ema is important also
    JULIE

  • ridingwaves

    the 89 has no bearing as BL mentions when it comes to trend, almost all of our charts and setups get thrown out the door on a strongly backed trend…..

    Morgan Stanley just predicted $100 oil because of some supply line issues in shipping industry..totally unrelated to oil but they carry the stuff around the world….

    when you start seeing everyone saying oil is going to $100, time is near for your turn….but might as well wait until it happens, it could be shallow to begin with…

  • BobbyLow

    Understood. And you must go with what you go with while others have many different things to use and must go with what they go with. All I know is that my BB’s/MA have had a 57% win rate and a high Average Positive Expectency based on Risk over the past 6 months. But even so, my numbers are only just that. Numbers. I believe that there is not a one size fits all strategy. Whatever we use must be a good fit for us individually or it’ll be like a bad fitting pair of shoes.

  • Julie 35 – 25 – 36

    GG I see the 2620 I too have 2600 – 2620
    JULIE

  • Julie 35 – 25 – 36
  • Sharon

    off to find something fun to do tomorrow

  • Julie 35 – 25 – 36

    You got it BL I use trend lines extensively as you have probably noticed Also fib exp moving averages They work very well for me USO with fib exp moving averages 5 – 21 – 55 2nd chart with the 89 JULIE https://uploads.disquscdn.com/images/2ab8efd5abe4a1cfa695665941fed050daa36cab58b7ce94795792b840bb5d06.png https://uploads.disquscdn.com/images/dbf03e1d756d6dbabdf1a3fae426e8136c81c3a490857dae622affbb854039bf.png

  • Julie 35 – 25 – 36

    RW .. Seeing it now the talk is 90 — 100
    JULIE

  • https://evilspeculator.com Sir Mole III

    WOW – that’s easy money. No wonder consolidations have been out of control over the past 20 years. Well we ARE in the right business… I wonder how difficult it would be to watch for large short transaction against potential acquisition targets.

  • BobbyLow

    One last thing that should be noted is the comparison of time frames being traded. If I’m looking at your EMA’s or my BB’s on a 30 Minute or an hourly chart they will most likely paint different pictures and tell different stories on a daily or a weekly chart. So dependent on which time frame being traded, one person can be long and another person be short and both be on the right side of a trade at the same moment.

  • Julie 35 – 25 – 36

    Hey Oil Bulls USO Let’s see how you handle this 50% retracement — Weekly 200 sma — Parallel channel (red) — Raff regression channel (blue) Bring it on Bulls — Bulls get out of my trade Now JULIE!https://uploads.disquscdn.com/images/0cf83764a02dfd561acc8d8fbf4b0f4b41266784c6730ed34279d08bdbaceb75.png

  • https://evilspeculator.com Sir Mole III