VXN outlook
The rising VXN channel since last July speaks volume: this is not a buy and hold environment. But volatility has to be measured on a relative basis, never in absolutes, which is why those waiting for VIX 40 are now scrambling to cover. After all, the great bull market of the late 90's rarely dropped below VIX 19.
I've plotted an envelope for VXN using 30% above the 10 weekly moving average and 20% below the 10 weekly. We are in a bear market, so I give more upside elasticity to the band. It plots relatively well for medium term trades starting from last July (the organic start of the bear market in my opinion). By the way, you can also use this set up for the VIX.
I've plotted an envelope for VXN using 30% above the 10 weekly moving average and 20% below the 10 weekly. We are in a bear market, so I give more upside elasticity to the band. It plots relatively well for medium term trades starting from last July (the organic start of the bear market in my opinion). By the way, you can also use this set up for the VIX.
As you can see, we came very close to the lower band (23.53, band is at 22.05), but not quite low enough to feel 100% comfortable with a short position. This is why I keep stressing shorter term trades. If we go down early in the week, I would close shorts off the NQ gap close, book profits and take a wait and see attitude. What is clear is that I have no desire to chase the long side at this stage in anything other than quick day trades. If we do get down to VXN 22 or close, I would leg in to a larger short position. If Friday was a VXN low, then bulls will be fighting a divergence all week if they take it up a little more.
Remember, these numbers are not absolutes: it will be different next week depending on where the moving average stands.
This entry was posted
on Saturday, August 09, 2008 at 8/09/2008 12:27:00 PM.
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