March 29, 2006
How I Use the CBOE Volatility Index
In the old days it was possible to identify rampant fear in the market by using an absolute value for the VIX (I used 40). Since 2003 the volatility has been in permanent decline, so now instead of looking for extreme absolute values, I look for extreme relative values.
The CBOE Volatility Index (VIX) is a key measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices. Since its introduction in 1993, VIX has been considered by many to be the world’s premier barometer of investor sentiment and market volatility.
The last time the Volatility Index spiked up to a relatively high value was in October 2005. The ISE Sentiment Index and my own MaoXian.com Sentiment Index didn’t confirm the spike so I didn’t buy anything, which turned out to be a mistake.
The strongest sector in October 2005 was, you guessed it, Energy.
March 29th, 2006 at 6:12 pm
Yep, thats what I do, watch for anything out of the ordinary in the $VIX. Regardless of what anyone says, it still is my favorite sentiment indicator but I always make an objective analysis before putting cash to work.
March 29th, 2006 at 7:01 pm
Sun Tzu and My Other Investments…
This morning I was planning on taking a break from the Art of War and review my current ETF holdings. Instead, as I was reviewing my ETF holdings I realized that the Art of War is applicable here as well! Overall they've been performing nicely sin…