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Just a brief review of VIX status:
VIX Z score scores again. The market begrudgingly registered a sell signal
early today. The early clue was a decrease in advances compared to
Wednesday and an increase in declines. Also a new intraday breadth
oscillator dropped convincingly below zero around 10:10 AM ET and never
regained positive posture after a retest of the zero line. It was a
"roadrunner" walk the rest of the day until it discovered that nothing but
hot air was below. The term "calm before the storm" aptly applies when the
VIX Z score drops to the -2 region. It is a time to be cautious as was
pointed out on Wednesday. The closing VIX and Average VIX were fairly
close together at the close indicating that there is a bit of disbelief as
regards the potential magnitude of followthrough selling. Had the closing
VIX Z score crossed and closed significantly above the average it would be
evidence of more fear. On the contrary it represented a quiescent
complacency and does not yet reflect the potential illiquidity in climatic
selloffs. A caution is in order for Friday and Monday as regards the VIX
readings. The CBOE rolls over the option components of the VIX from August
to September and October on Monday prior to options expiration. There may
be a discontinuity or perturbation in the VIX between Friday and Monday, so
we will stay atuned to this possibility. MVI807 follows.
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