VIX peaks and $SPX moves

[probtrader]

Last week the VIX peaked at 14.50. This is a very high level relative to a regression of volatility levels since 2004 and might indicates the SPX is ready for new highs. From last week close (the point where the VIX peaked) to today the SPX is up 1.7%.

[Goodfella]

vix fell with the market after the rate decision

eh?

[probtrader]

The SPX made new highs today before closing at 1294.12. This represents a 2.6% gain before dividends from 1/20, when the VIX peaked at 14.5 and the SPX closed at 1261.49.

Over the last 2 years, VIX readings 1 std. deviation above (and below) the index regression trendline have been a very good predictors of future market direction with the VIX always reverting to an opposite extreme value and carrying a trend effect for the market. This already happened on 08/06/2004, 04/15/2005 and 10/21/2005 (see attached weekly chart).



At some point the volatility trend will reverse and the regression trendline I'm using will be meaningless, but for now I still think the market will continue this short-term uptrend until the VIX reach a level of 10.5 or lower.

Meanwhile I'm seeing a divergence in the other short-term indicator I wrote about in this forum, the NDX vs. DJ Industrials relative strength. I'm going to post an update in the $NDX relative strength vs. DJ Industrial and $SPX thread.

[rffrydr]

Good work on that. And with M3, inflation rates, long-term relative PE evaluation etc. etc.

Whatever else the VIX is (as I recall its original basis in a handful of out-of-the-moeny OEX options that no-one under 50 trades was embarassing enough to endure a "reformulation") it WAS a successful sentinment indicator over the past five years or so. Something new! Something that worked!


Funny thing, when Sue Herrera started breaking it down for us--it started breaking down as a useful tool. If for no other reason than everyone was using it--not long after being "reborn" statistically.

I always thought it was useful, and continues to be, not for its level, but its shape.

Knowledge, like all monuments is an ending.
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Today is the Tomorrow you worried about Yesterday!

[nodoodahs]

http://nodoodahs.blogspot.com/2006/01/m3-versus-vix.html
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I haven’t seen a beatin’ like that since somebody stuck a banana in my pants and turned a monkey loose.

[nodoodahs]

VIX is related to M3 accumulations. I will post complete with graphs on the blog later tonight.

42% of VIX value can be explained by 13-week delayed YOY M3 changes. Also variance of VIX correlated to M3.
_________________
I haven’t seen a beatin’ like that since somebody stuck a banana in my pants and turned a monkey loose.

[HenryTo]

Speaking of the VIX, following is a link the latest BCA article regarding what they think the VIX will do going forward:

http://www.bankcreditanalyst.com/public/story.asp?pre=PRE-20060127.GIF