This is a chart of the VIX, the volatility index for the S & P 500 for a brief period in September and October 2008. Prior to the end of September, the VIX had been in what is now call a Phase 1 Unstable VIX Pattern since August 2007, defined to mean a breakdown of the Stable VIX Pattern by one or more Trigger Events, and a pattern of movement largely between 20 to 30 in the VIX with occasional spurts into the 30s and even below 20.
I say that it is called now a Phase 1 pattern, because the VIX Asset Allocation Model had no other phases for an Unstable Vix Pattern prior to October 2008. Since the development of the model in early Summer 2007, it did have two Phases of the Stable Bull Pattern, consisting of Phase 1 being steady VIX movement of 15 to 20 and then the most stable of all being Phase 2 which shows quiet and stable movement in the 10 to 15 range. It was the Phase 2 Pattern of the Stable Vix Pattern that was disrupted by the Alert in February 2007 directly connected to news about the worsening subprime problem.
I say that it is called now a Phase 1 pattern, because the VIX Asset Allocation Model had no other phases for an Unstable Vix Pattern prior to October 2008. Since the development of the model in early Summer 2007, it did have two Phases of the Stable Bull Pattern, consisting of Phase 1 being steady VIX movement of 15 to 20 and then the most stable of all being Phase 2 which shows quiet and stable movement in the 10 to 15 range. It was the Phase 2 Pattern of the Stable Vix Pattern that was disrupted by the Alert in February 2007 directly connected to news about the worsening subprime problem.
The above chart starts to show trouble in mid September with continuous movement in the 30s. Under what was then called the SSO/SDS Swing Trade Model, this movement would have required the sell of SDS which had been purchased when the VIX was below 20. Even Elegant Models Blow Up/More on International Bonds as a Non-correlated Asset
It was that model which got itself blown to bits by the formation of the Phase 2 pattern of the Unstable VIX Pattern in late September 2008 when the VIX decisively broke out of the Phase 1 pattern on 9/29/2008 by making a move that could only be characterized as a break down of the prior pattern, with the VIX going from 34.74 to 46.72 in just one day. Volatility, Catastrophic Event Formation, Asset Allocation Decision for Pepsi September 2008 After that time, I decided to break the bear pattern into two phases, with the most deadly phase now labeled Phase 2. But, after Phase 2 formed, there were two days where selling could have been done at higher prices before the bottom fell out. I could look at the above chart and know without any other information that the market was tanking in a big way.
It was that model which got itself blown to bits by the formation of the Phase 2 pattern of the Unstable VIX Pattern in late September 2008 when the VIX decisively broke out of the Phase 1 pattern on 9/29/2008 by making a move that could only be characterized as a break down of the prior pattern, with the VIX going from 34.74 to 46.72 in just one day. Volatility, Catastrophic Event Formation, Asset Allocation Decision for Pepsi September 2008 After that time, I decided to break the bear pattern into two phases, with the most deadly phase now labeled Phase 2. But, after Phase 2 formed, there were two days where selling could have been done at higher prices before the bottom fell out. I could look at the above chart and know without any other information that the market was tanking in a big way.
ADDED 3 P.M: So what happened on 9/29/08? Was it good or bad for those who own stocks and would you even need to know what it was other than a lot of trouble for those who own stocks? NYTimes.com
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