Friday, May 1, 2009


Since LB can continue its work even without sleep, it can answer a question about the VIX Asset Allocation Model in its current form.  

An "Alert" happens when either an unusual break in a pre-existing pattern occurs, or there is some meandering by the VIX above a level considered to be significant under the model, without a decisive break into a bull or bear pattern characteristic of the Transition Phase or an unstable VIX pattern.   An example of an alert is the decisive break in the Phase 2 bull market pattern in the VIX in 2/07.  The break was not a trigger event since the pattern broken was a stable bull market pattern Phase 2, and the Phase 1 pattern was still stable.  An alert, however, would cause LB to learn everything possible about the external events causing the alerts and to be considering possible major changes in asset allocation.

A "Trigger" is a decisive break in the stable bull market pattern by a spike in volatility clearly outside the range tolerable for a stable VIX pattern.  Those spikes happened in two stages in 2007, in August and November.  The trigger event requires a change in exposure to stocks.  Timing of that change can vary, but LB has noted under all models covering the entire time period for which there is a volatility index that there would have been at least one, usually two, counter-moves back to below 20 that would be accompanied by a rise in the market average.  

A  brief meandering above an acceptable level of 20 and then a pullback below 20 is an Alert.   A rise in the market with an elevated VIX pattern above 20, as in 1999, is a non-confirmation event, and requires the trigger events to be followed, notwithstanding a continued rise in the averages.  Trigger events prior to the last bear market happened in October 1997 and August 1998 which were part of a non-confirmation period for the market's subsequent rise in 1999 where the VIX stayed in the 20 to 30 range.  

RB is awake now and just said something like "Our Great Leader is a nerd's nerd". 

No comments:

Post a Comment