Wednesday, 26 September 2012

Volatility primed to explode

The current VIX of 15.43 remains very low in historic terms. Typically, we'd normally be somewhere around 20. Considering the endless socio-political and macro-economic problems out there, it is truly incredible to see both US and other world markets so utterly complacent.

Today's 9% gain in the VIX barely registers as noise when you consider the bigger picture.

VIX, weekly, 2yr


The underlying MACD (blue bar histogram) cycle is due to go positive cycle towards the end of this week, or early next week. There are some good signs that the cycle is well overdue a move to at least the mid 20s.

First near term target is the big 20, a few consecutive daily closes over 20, and we should at least test the 24/26 zone - which historically has often been where a intermediate sized VIX up cycle maxes out.

Seeking a lower high

As noted in the index update - regardless of where the current down cycle floors, the doomer bears should be seeking a lower high<1474. If that is achieved, then a major index cycle top may have been put in. Although its something that will take a few months to be absolutely sure of, which of course is of little use for short-term trading!

Those VIX calls sure are 'cheap', but then, that's been the case since late June, and the decay on options really is a problem if the entry is not timed well. I haven't picked any up yet.

If my 'two red flags for October'* are confirmed at this Friday close, then that does bode for the VIX to explode higher next month. The only issue then is, 'how high?' .

Goodnight from London

*I am seeking transportation index to close <5000, and WTIC Oil <$90, both at the close of trading Sept'28.