Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Looking for an Edge

By

PrintPRINT

It seems like it is feast or famine here on the street of dreams and I just don't know which one. All my near-term indicators are basically neutral, the market remains in the middle of the trading range, and the volatile earnings reporting season and Passover and Easter holidays are rapidly approaching. Basically, there's a feeling that something big is about to happen. Everything cannot remain neutral forever.

Stuck in the middle for now



One indicator that could serve as a guide to the next 5% move is the CBOE Market Volatility Index (VIX). Since last October, anytime the VIX moved toward 26, a decline wasn't far behind.

One-year VIX shows key testing ground




Typically, a low VIX suggests complacency or comfort in the markets and serves as a signal that too many people are expecting upside action. It is a contrary indicator. When the VIX is low, it is typically negative for the market and when it is high, it is positive for the market. So the key is to figure out what is considered low. The VIX may be low at 26 since last October, but it can easily move toward 20.

Two-year VIX shows support at about 20


The point is that if this rally is like prior rallies in the range, the market should stop going up here as the VIX is near 26. If the move is more significant and has potential to move to the upper end of the range (SPX 930ish), then the VIX should give traders a sign by moving (and staying) below 26. It is very important to note that the upside move -- if it even happens -- is likely limited to the upper end of the range because of the intermediate-term reasons I outlined last week.

In a sea of neutrality with no edge, this may be one indicator that can guide here. I rarely use it because it is so overplayed in the financial press, but there are times when it works well as a guide. And this could be one of those times.

< Previous
  • 1
Next >
No positions in stocks mentioned.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
PrintPRINT
 
Featured Videos

WHAT'S POPULAR IN THE VILLE