Early to bed and early to rise makes a man healthy, wealthy, and
wise, the old saying goes. But, being early to a trade can
have the opposite effect, potentially losing money.
On Aug 6 we wrote an article on the
that identified a high probability trade that was setting up. With
the VIX (CHICAGOOPTIONS:^VIX) under $15 today, that setup has still
not triggered and we continue to wait patiently for its tradeable
The negative news headlines and supposed fear have not let up
this year. But, like early August and early July, the VIX is
still hovering near yearly lows and not showing the fear that is
being portrayed by the news. Something is being missed by the
media, and the VIX is telling us what.
"Did Wal-Mart (
) Just Douse hopes for a Recovery" - August 16, 2012
) Europe Sales Fall as Economy Struggles" - August 16, 2012
"Facebook (NasdaqGS:FB) director Thiel sold 20 million shares after
lockup" - August 20, 2012
Given the negative news environment, an expected sky-high VIX
would not seem out of the question. This simply has not been
the case as the VIX sits near its yearly lows and actually
shows that investors are not really worried at all. Although
the news portrays fear at an extreme, the VIX is showing us that
risk is actually expected to be low.
Time to Buy the VIX again?
With all of the negativity in the media, investors following it
might be perplexed that the stock market (NYSEARCA:IVV) is up 12%
year to date, with some popular index
like the iShares S&P 500 Growth Index (NYSEARCA: IVW) up
Examining the VIX and its relationship to the market, on 8/12
with its price at $14.74, we stated in the
Profit Strategy Update
, "The VIX continues to churn below the all-important $16
level. We will watch the VIX for another signal that the
S&Ps attitude has changed, and a sign that VIX ETFs can be
Today the VIX is still confirming the market's complacency and
continued S&P price advance, but that time may be ending
soon. Until it does, the market will likely continue its
The below chart shows some of that VIX analysis and highlights
some of the levels we are monitoring to tell us when the VIX bottom
is in place. When that occurs we will be ready.
(to see an updated version of the chart and key price
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 the VIX setup, when it
does occur, 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).
Used in conjuction with other tools, the VIX gives us clues
about the market's next big move. Each month the
Profit Strategy Newsletter
, and a few times a week via the Technical Forecast, we use
key indicators like sentiment, and breadth to identify high
probability trading setups for the S&P 500, the VIX,
and ETFs linked to major asset classes.