On July 9 we wrote an article on the
VIX
that identified a high probability trading setup. Today, we
are again seeing that familiar setup.
Similar to that July time period, negative news headlines and
supposed fear have not let up. But, like early July, the VIX
is still hovering near yearly lows and not confirming the fear that
is prevalent in the news. Something is amiss.
More Headline Risk
Even as the negative headlines still dominate the media in early
August, the VIX's price under $16 has not confirmed such a bleak
outlook:
"Jobs Engine at a Crawl" - Barron's, August 6, 2012
"Europe in Crisis, Can Central Bankers hold EU Together?" -
FuturesMag, August 2012
"US Manufacturing Contracts Again" - CNN, August 1, 2012
Given the negative news environment, an expected sky-high VIX
would not seem out of the question. However, this simply has
not been the case as the VIX sits near its yearly lows and
actually shows that investors are not really worried.
Time to Buy the VIX again?
The U.S. stock market (NYSEArca: DIA) has declined from its
April highs, but it's still ahead an admirable 8.8%
year-to-date. Investors following the news might be perplexed
by this apparent contradiction, but the ETF Profit Strategy
newsletter sees it as an opportunity as the VIX provides us another
great trading setup.
Examining the VIX and its relationship to the market, on 7/22 we
stated in the ETF Profit Strategy Update, "Discussed in the 7/8 TF
(Technical Forecast), a dip down below the 16 level is what we
wanted which would signal complacency. This occurred on
Thursday (7/19) and also coincided with the market's top on
Thursday (7/19). The VIX is confirming a potential (S&P
500) top here." We also commented, "A breakout above the
resistance red trendline currently at 17, that has now held
numerous times the past two months, will give us a high probability
buy signal on the VIX. This will set up a pretty high
reward:risk trade." On 7/24 the VIX closed at $20.47.
The ETF Profit Strategy Update is seeing a similar trade setup
again. The below chart shows some of that VIX analysis and
highlights some of the levels we are monitoring.
(to see a larger version of the chart
click here
.)
If used correctly, the VIX can help you spot potential market
turning points and show when sentiment is at extremes. Some
ETFs
that can be used to take advantage of our VIX trade are the
ProShares VIX Short-Term Futures ETF (NYSEArca: VIXY),
the ProShares Short VIX Short-Term Futures
ETF (NYSEArca: SVXY), and the ProShares Ultra VIX
Short-Term Futures ETF (NYSEArca: UVXY). The ETF Profit
Strategy Update is continuously analyzing the VIX and other markets
in order to help keep profits larger and reduce trading risk
for both short term aggressive traders as well as more conservative
investors .
The VIX resistance and analysis was not created out of thin
air. There is a method to our trade setups and each month the
ETF
Profit Strategy Newsletter
, and a few times a week via the Technical Forecast, uses key
indicators like sentiment, and breadth analysis to identify
high probability trading setups for the S&P 500 (NYSEArca:
IVV), the VIX, and other indices and ETFs.