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I mis-stated Larry Connors' interpretation of the VIX in a previous post.
Perhaps I should pay closer attention to my schooling. A portion of a
recent column by Mr. Connors on the Tradingmarkets web site is excerpted
below. I mention the web site only to give proper credit.
Dan
"And, another time to not to be buying stocks is when the VIX ($VIX.X) (CBOE
Volatility Index) is trading 5% or more under its 10-period simple moving
average. Why? Because had you bought the S&P 500 every time the VIX was 5%
or more below its 10-day SMA, and exited a week later over the past 18
years, you would not have made money! The market has risen 431.59% during
this time and yet none of this gain (net) has occurred when the VIX was 5%
below its 10 day-sma. Unreal, isn't it?............Being 5% below its 10-day
ma doesn't mean the market has to reverse. The rally can and many times will
continue. We just know that over the past 18 years, on a net basis, it's
been dead zone with no edge……….The point of this week's lesson is to discuss
why you should not be buying overbought markets. There are many ways to
measure an overbought market, but in my opinion, the 5% VIX Rule is among
the best."
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