Tuesday, May 5, 2009

This is an Unstable VIX Pattern: Good or Bad for Stocks?

If you were back in August 2007, and all the information that you had in the world was this chart, what would you do?  This is an Unstable VIX Pattern as defined in the Vix Asset Allocation Model with the first Trigger event in August 2007 , and then there was a massive cataclysmic event in mid September 2008.  Does the chart reveal a bull or a bear pattern?    The Stage One Bear Market is defined as the Whipsaw Pattern mostly in the elevated VIX range of 20 to 30, with spikes over 30, and even short periods below 20, inconsistent by definition in the model with an investable bull market.  An investable bull market is defined to mean one likely to last for more than two years, probably longer, until the next Trigger Event signal, as shown by the movement of the VIX into a Stable Vix Pattern from an elevated one and maintaining movement in the low range below 20.   The second Phase of the current Bear Market begins with a break out of the 20 to 30 range Bear Phase 1  in a cataclysmic event under the model in mid September to early October 2008.  This would of course represent a huge problem for those long stocks. 

Now I am done discussing this.  This is  old news and I need to move on with what I need to do tomorrow. But, in the future, investors need to keep an eye on the VIX if the past is prologue.  What’s past is prologue - Wikipedia, the free encyclopedia

As explained throughout this blog, my use of this model is as an indicator to shift some money out of stocks into cash, since the Trigger Event makes stocks less safe thereafter. 

ADDED: I thought that I would add a comment. In September, I was holding some positions with the intent of toughing it out, such as Pepsi and AT & T.  Many of those positions were jettisoned at the start of the Bear Phase 2, shown dramatically in the above chart WITH THE INTENT OF BUYING THEM BACK AT A LOWER PRICE.  AT & T was thereafter bought back at a much lower price in at least two stages, with the last buy around 23 and change or so. 

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