Jul

8

TaurusThere have been a number of absurd studies over the transom lately. VIX has to go above 29% for a market bottom because that's what it's done at the bottom of other market declines. Equally ridiculous is that the average market decline when it's gone down at least 20% is 27%. What these studies fail to note is the expectation from a given level as of a closing price. They are flawed because of retrospection and perfect knowledge as well.

Lawrence Schulman writes:

I don't think those studies are absurd at all. The four big selloffs we had last August, November, January, and March had VIX going above 29. Right now the market has taken out the previous lows. So I think it is wise for anyone to have some cash on the sidelines since the probablity would favor another large VIX spike. As far as the average bear market's being down 27% from the top, I would have told an investor: when the market is down 20% from its bull market high — which happened this week — the likelihood is the market would not stop going down once it hit the 20% pullback. And on Friday the market was down 22% from its bull market high.

Andrew Goodwin remarks:

Seems absurb that a bell will ring at a market low, which was to be announced, according to multiple pundits, by a VIX move above 30. The markets normally confound attempts at bottom fishing by the masses. Those looking to the contrarian idea that an indicator so scrutinized by the public could not possibly work, and even citing the Heisenberg principle, were taken aback when the tool worked this time. This time was different because the smart money contrarians outsmarted themselves by looking for deception. The VIX lady really did sing at the end and it didn't convince all.


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