Friday, January 2, 2009


Before leaving HQ for my morning chores, I just wanted to point out that the VIX is now trading below 40, which could be significant for reasons that I previously discussed.  The last trade was at 37.99 before making this post. One thing about these volatility models is that they are guides rather than hard and inflexible rules for me.  I noticed after reading my discussion of the RVX model which I excerpted from my never to be published "book" that the discussion in the post was very hard to follow without the charts and all of the discussion.  

Suffice to say, I was getting a confirmation in 2007 of an imminent bear market in a lot of different indicators not just the RVX model.  Given the risk with small caps, I am going to jettison them quicker than I would a seasoned company like a mega cap consumer staple. My trigger points in the RVX model are a lot looser than the ones in the VIX model. I will sell more small caps sooner coming out of a break of a RVX bull pattern and I am less likely to be a stickler for the RVX returning to below 20 to do that. So, as I have mentioned, a Transition Phase signal in the VIX has given at least one opportunity to sell or to reduce holdings on a market rally when the VIX returns to below 20 after a major spike out of the bull pattern.  This may not happen next time but it has happened in the past. The RVX is far less likely to give me such an opportunity after the break in the bull pattern. 

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