Each time there is a panic selloff and recovery, the buyers who stepped up to the plate and accumulated shares at a discount show that they are in control of the market.
What happens when VIX or VXN spikes when the market falls? Well, sellers of options demand higher prices to compensate for higher risk or higher costs of taking a trade. Also, buyers of options pay UP and take offers for options which gives them protection from declines in stock prices (or a big rise in stock prices). 90% of the time VIX rises when the market declines, which makes people think VIX or VXN only rises when stocks fall. But that isn't the case.
The nervous sellers sold into the stronger hands of the buyers. The sellers now sit comfortably in cash and HOPE to buy back their shares at the discounted prices that they sold them "in a panic". But, as you see, the market doesn't accommodate those nervous sellers very often.
SO...
What happens is the market finds support just above or just at the levels where sellers jumped-ship.
Take a look.
See the pattern?
Good.
Now - don't tell anyone about it.
Tim
10:31PM July 17, 2017
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Click "Update" and see where the bottoms have been so far.
It is idea when the market holds the high end of the accumulation range. It is common to find support at the mid-point of the accumulation "box".
Either way, I hope you understand this important concept and are using it in your market timing/allocation strategies.
@hasskhalife, Thanks! Do you think the "media" will ever understand the VIX? I guess I hope not. It's nice to have clear vision when everyone else is vision-impaired.
timwest
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844 views and 15 "thumbs" ups. Less than 2% "like it". Amazing. Tough crowd. This is hard-hitting, nail it down, specific support levels you can use to make 100% return or more in a year, every year. Tough, tough crowd.
I'm guessing you still think the pattern holds after today?
Funny story about my stupidity. 7/25 in the afternoon after the Fed, I meant to place a stop limit order around 113 (I'm trading TQQQ). Instead, I placed a limit order, which sold me off at 133.44. I got done with the meeting I was in and thought, DAMMIT, the market went up even more. This morning it went up even MORE more. Grrrrr.
Then came the afternoon dump, and a close of 111.74. After hours, it's at 110.41.
Sometimes it's better to be lucky than good, I guess. IF, of course, the pattern holds. And I didn't look at VIX or VXN, but I can take a guess. IF the pattern holds....
How long is this good for? It can't go on indefinitely...
timwest
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@vuduchyld, Good question about "How long does it work?" If the market doesn't respond to the level or doesn't retest the accumulation level, then you can see much more downside action to wipe out the overaggressive longs. What has happened in the past is either a lack of VIX spikes during a rally, which leads to a big drop back to the beginning, or if there are too many VIX spikes in a given zone which means that major holders of stock are liquidating their positions in waves. So, the pattern of VIX spikes tells a story. But "low VIX" tells almost nothing to us other than "there is plenty of market liquidity" (which means plenty of cash on the sidelines 'hoping to buy on a decline').
vuduchyld
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@timwest, When you are right, you are RIGHT. Another ATH...