We have written about crossover signals from the CBOE’s Volatility Indices in the past. In particular, we want to present research on sell signals generated when $VIX rises above $VXV. But first, we want to update the statistics on the systems that we have presented previously, with regard to these crossovers.
Now that January is past, most of the seasonal trades are over for this cycle. It was an interesting and somewhat profitable seasonal trading season, but it always behooves a trader or analyst to go over the results of a system while the data is still fresh. This can lead to adjustments – hopefully profitable ones – when the seasonal system rolls around the next time. Furthermore, if no adjustments are needed, it confirms that the system is continuing to work well.
Last October, the CBOE changed the way it calculated $VIX – or, as the CBOE put it, the methodology was “enhanced.” The change was a logical and necessary one, in that weekly options were used in the calculation, where applicable. $VIX is a 30-day volatility estimate, and it had always used the two nearest series of $SPX monthly options. They were then weighted to produce a 30-day volatility measure.
...An astute subscribers noticed that, last week, another $VIX “spike peak” buy signal was setting up. $VIX had risen more than 3.00 points, measured with closing prices, from Jan 9th to Jan 13th (two trading days later). Moreover, $VIX then dropped sharply this past Monday, January 20th, triggering a second signal while the first one was still “open.”
The feature article is a relatively short one, discussing the various January seasonal patterns that exist. Most of the article deals with the end-of-the-month “January Seasonal Buy” that we have used in our recommendations for a number of years. There is a specific recommendation for this system on page 2.
The period between late October and the end of January is replete with seasonal trades. In late October, we had the “October seasonal” buy, followed by the Thanksgiving-related seasonals (most notably the post-Thanksgiving trade), which dovetails at the end with the Santa Claus Rally.
Frankly, I don’t put much credence in long-term projections, and neither should you. How many people have you seen on TV making predictions without the least amount of statistical backing? Those would better be called “guesses” or “wishful thinking.” The worst (or best, if you’re cynical) was the CNBC reporter who made sports predictions for next year.
This year, Christmas falls on the 4th Thursday, and the stock market will be open for a half day on Friday, December 26th. We will publish our next issue sometime in the morning of Friday, December 26th.
We are planning a new series of six seminars, one each on the major systems that we use to trade the markets. Each of these had a major profit with buy signals near the October lows, and all have long-term successful track records. Stay tuned for schedules, pricing, and subscription information.
When the tech boom of the 1990's collapsed, the NASDAQ Composite Index ($COMPQ) and other related indices (NASDAQ 100: $NDX) and their ETF’s (QQQ) collapsed as well. The highs that were set in 2000 seemed as if they would never be breached, and they haven’t been – so far. But with nearly everything else having recovered to new all-time highs, one wonders if the same could happen for the NASDAQ indices.
For the record, here are the peaks, peak dates, and current prices:
The feature article discusses a protection technique – collar buying – that is favored by many sophisticated stock owners, including institutional traders.
