Wednesday, October 08, 2008

Panic Volatility

Here is a weekly bar chart of the VIX options volatility index. It is  higher now than at any  time in the past 10 years, including the Long Term Capital Management panic in 1998 and the 2002 bear market low. As a rule it pays to be bullish when volatility spikes upward like this. 

16 comments:

Anonymous said...

Here is an interesting opinion by Doug Kass from yesterday about the VIX spike: http://www.thestreet.com/story/10441088/1/kass-the-tail-might-be-wagging-the-dog.html

--Jeff

Anonymous said...

carl, vix spiked to highs last week.....we are now 11% down. it has not paid to be bullish

Anonymous said...

thanks Carl.

I was just thinking that the recent regulations preventing shorts might increase put demand & inflate vix.

This may confound the comparison of current vix to its historical values.

ciao
Solrac

extrader said...

Carl,

What are ur thoughts on the economist Nouriel Roubini? He is on Yahoo finance and is predicting we will be in a 2yr recession and DOW going down to 7k?

I know anything is possible, but that would mean that the country went no where in a decade?

Any thoughts on his prediction of 7K... I think I already know ur answer.

ex

Win said...

Carl,
Compare the Qs to the major indices on a daily chart for today. I think you will find support for your bullish premise.

Anonymous said...

Carl I think you owe someone a case of wine. Not so long ago, I believe you bet your soul that S&P500 wont fall below 1075 this year. While he bet his bowl of bean soup that S&P500 wont see 1600 this year.

Anonymous said...

Panic? what panic? the market still selling in a very orderly fashion. I'll start buying when you turn bearish!

rcks said...

Carl
I agree with the last poster in that I think we are only completing the first leg down of the 2001-2002 bottom and we have the rise ahead of us into the 2002 Dec high and then to be followed by the drop into the 2003 lows. We will rise into the January earnings and then start the last leg down into late '09.
I have a feeling the market is waiting to use the shorts being allowed back tomorrow to generate a drop to your 940 target and then letting the shorts help fuel a rise with big volume, a big reversal up.

Anonymous said...

Carl
The problem is what normally works for you isnt working.
The only thing we know is all major trends are down-so why fight it?
When the trend turns up I'm with you.

regards
Rod

Carl Futia said...

Question:

How will you know that the trend is up?

Anonymous said...

carl
your comments regarding the vix is correct and the old market adage of sell rosh hanshannah sept 30 and buy yom kippur today oct 8th apears to have some correlation at this moment , how ever i still do not see an oversold reading on a couple indicators that i rely on .
a rally for a few days or even a couple weeks is fine yet if it is a sad weak rally then new lows will be coming into dec 5th
so im staying with my hedged positions still . i think the qqqq
should test 28 and if that breaks 22 . so im not convinced we have seen the bottom even though it is possible . there are several bullish cycles turning up and several bearish cycles that still point lower . the market is going to have a difficult time sustaining any rally untill after the bearish cycles end in which case dec 5th to march 23rd . the bullish cycles call for a high june 9th 2009 .
joe

Keith Shepard said...

Answer:

When price is higher on the right side of the chart and lower on the left side.

Do I win?

Carl Futia said...

A profoundly unserious answer. But pretty much what I expected.

Howard Bernstein said...

This link will be of interest to you about the VIX. It says that the VIX is still not high enough, comparing implied volatility to historical.
http://www.schaeffersresearch.com/commentary/observations.aspx?ID=88204

kleenup2 said...

Carl, you are kidding when you asked how will we know when the trend is up aren"t you? Anyone with even the most primary knowledge of trading or basic chart reading knows how to draw a trend line on a chart. A downtrend is considered valid until a higher low forms and the ensuing advance off of the higher low surpasses the previous reaction high.As long as prices remain below the downtrend line, the downtrend is solid and intact. A break above the downtrend line merely indicates that net-supply is decreasing and that a change of trend could be imminent. But simply stated an uptrend is defined as a series of higher swing highs and higher swing lows on whatever time frame that you happen to be following. The greater the time frame the greater the relevance of the trend. The trend on the monthly, weekly, and daily charts is down. I do believe you are letting your detractors get under your skin and you are letting your emotions and pride cloud your judgement. I used to have a blog as well and the naysayers can effect your objectivity. Enjoying the discourse as always.If there is anyone in the Charlotte, NC area that reads the blogs we have a trader's group that meets twice a month for discourse and fellowship.
kleenup2@gmail.com

Anonymous said...

No one knows anything and no one can predict anything about the markets. There are no patterns that mean anything.

Nature is ruled by power laws that are stochastic and fractal, where the fat tails make all the difference and the averages mean little.

Personally, I am doing my homework and buying long as a GAMBLE. Even if the market dips lower I will sit patient and wait, wait, wait for the rebound. I did this after Sept 11, 2001- I bought lots of Apple, Nike, and some pharma stocks dirt cheap. I held them for 3 years and sold them at a HUGE profit.

If there is NEVER a rebound or not one in my lifetime (I'm only 36), I am calm because I'm not using an amount of money that would threaten my net worth, financial security, or standard of living in any noticeable way. If there IS a rebound in the next 1, 5, 10 years I will make TONS of money again.

I have no delusions, illusions, or misinformation about what I'm doing. I'm gambling with no real knowledge or meaningful way to predict the future. Amen.