Are we in or nearing the capitulation stage of bear market?

[2B]

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Originally Posted by 2B The market has opened up. I wouldn't be surprised to see a massive wave of selling come in later today and crush it again. That might be capitulation.

Unfortunately, it appears I was correct about the wave of selling. We're back to being crushed again.

[ziggy29]

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Originally Posted by 2B Unfortunately, it appears I was correct about the wave of selling. We're back to being crushed again.

In times of extreme fear and greed, this is what happens.

I remember back in 1999, on any day the Nasdaq was taking a drubbing, money rushed in to "buy on the dips." That happens in a market fueled by greed and "irrational exuberance."

Now it's the opposite: almost all strong rallies are met with a huge wave of selling that erases all the gains and then some. That's what happens in a market fueled by fear and panic.

There is no bottom, IMO, until rallies can start consistently holding at least most of their initial gains. As long as rallies regularly fizzle and turn into drops, there is no bottom.

[FinanceDude]

Right now fear is stronger than greed. When greed becomes stronger than fear, the market will rally.

What I see is a lot of large institutionals dumping shares. They'll be buying in a few days, but probably not en masse..........

[dex]

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Originally Posted by 2B I don't see a cause and effect or even a reliable sell / buy indicator. Like most forms of technical analysis you can use it to clearly explain what happened.

1. Spiking - VIX in a range in between 17 and 30 - The VIX is used to show extreme levels of fear (bottom) and complacency (top) in the market.
In this range is where the greatest amount of uncertainty is.

2 .- long period of time - It is used to show the trend
- Below 17 - market generally up (from 2004 to half of 2007)
- Above 30 - market generally down

So once you determine the situation you can then determine the investment climate.
No one said it gives you a definitive buy/sell signal.

So if you were to use it for investing a simple plan would be:
Out or No investment - 17 - 30 - Watch for extremes to give you a market direction watch signal.

Buy - VIX at 16.5 and past points trending down
Sell - VIX 17.5 and past points trending up
No system will give you exact high/low, sell/buy points. But a good it would help you mitigate losses (and of course profit)

PS - the traditional lower number was 20 - I used 17 here since that was on the chart I had & I wanted to show the lower extreme and how to use it. I would suggest the 20 - 30 range is better.

[2B]

Quote:

Originally Posted by dex 1. Spiking - VIX in a range in between 17 and 30 - The VIX is used to show extreme levels of fear (bottom) and complacency (top) in the market. In this range is where the greatest amount of uncertainty is. 2 .- long period of time - It is used to show the trend - Below 17 generally up - Above 30 generally down

So here's the question. Does this current VIX number mean I should sell because it's going lower or should I buy since once the VIX gets above 30 the market has hit bottom?

Also, when does the VIX indicate it's time to buy and sell?

I agree that the VIX shoots up when the market dives and falls when things are looking good. I see it as a reflection of investor fear which is certainly going to increase during down drafts. We're in a good panic at the moment so people are scared.

[utrecht]

VIX spiked up to 42 about 15 mins ago. I bought a large load of SSO (double the SP500). I sold it about 8 mins later for a 4% profit.

My first successful day trade!!!......and most likely my last attempt at doing it.

[2B]

I just saw a news item that said the London stock exchange is banning any new short positions in financial stocks. The S&P jumped on the news. Will this happen here?


Britain bans short-selling, citing 'extreme' market climate - MarketWatch

[REWahoo]

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Originally Posted by utrecht My first successful day trade!!!......and most likely my last attempt at doing it.

Nope, you're hooked. And doomed.

[2B]

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Originally Posted by utrecht VIX spiked up to 42 about 15 mins ago. I bought a large load of SSO (double the SP500). I sold it about 8 mins later for a 4% profit. My first successful day trade!!!......and most likely my last attempt at doing it.

Dumb luck. See my post. You "timed" the market brilliantly, got a call from your buddy in London or were just plain lucky.

[ziggy29]

Quote:

Originally Posted by 2B I just saw a news item that said the London stock exchange is banning any new short positions in financial stocks. The S&P jumped on the news. Will this happen here? Britain bans short-selling, citing 'extreme' market climate - MarketWatch

There is talk about curtailing "naked" short positions and reinstituting the uptick rule, but I haven't heard an outright ban on shorting seriously suggested.

[utrecht]

Obviously it was dumb luck to time it that perfectly. However , I have done some research into the VIX. It seems that if you bought the SP500 every time the VIX spiked over 30 and sold it when it went back down below 20, you would have done pretty well.

Sometimes that takes many months and Im not saying its any magic potion to great market outperformance. Just an observation.

I did go on margin to buy SSO the last 3 times the VIX went above 30.

I had a 4% profit over 3 weeks
I had a 6% profit over 3 months
The last trade is yet to be determined since I just bought it on Tue.

I couldnt help but buy more when VIX went over 40 but sold it right away for a profit when the market turned around instantly. This is just a small portion of fun money I use for trading. I dont claim to be any expert trader or anything.

[al_bundy]

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Originally Posted by 2B All your plot tells me is that during severe down turns in the market people are nervous and the VIX rises and during market up moves people are less nervous and the VIX trades at a lower level. I don't see a cause and effect or even a reliable sell / buy indicator. Like most forms of technical analysis you can use it to clearly explain what happened.

no one tool or indicator will scream buy or sell

you have to look at them all and make a decision. VIX is good at times like these to guess if we are close to a bottom or top by looking at historical VIX data

Vix hit 43 after 9/11 and 45 in July 2002. in each case it was a bottom for a few months

[2B]

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Originally Posted by ziggy29 There is talk about curtailing "naked" short positions and reinstituting the uptick rule, but I haven't heard an outright ban on shorting seriously suggested.

Supposedly, naked shorting has been banned effective today. I can't imagine how or why it ever was allowed. I believe it had always been banned except for certain market makers but it was totally unenforced. The SEC has now raised the offense to be a "fraud." I won't believe it until I see the "perp walk."

The uptick rule had always been bypassed by the big boys. It only impacts the retail customers. Now if they eliminated computer driven sell programs it could be done but I don't see that happening.

I believe there is a valid role for short selling. Naked shorting has created a mighty tool for short sellers to guarantee success. The buyer always has to put up money. A naked short seller just needs to keep selling until the buyers give up.

[audreyh1]

Wow - VIX spiked well above 40 today. I read the last time it got above 40 was 2002.

Oh - I see Al-Bundy already posted.

Audrey

[2B]

I'll concede that the VIX is a great measure of market panic. It follows the old rule of buying when there's blood in the street. What you can't predict with the VIX is that when you buy a 30 you won't know that you could have gotten a better deal at 40.

I'm sure someone could do a multi year calculation of buy the S&P with the VIX at 30 and sell at 17. Then compare that to a buy and hold of the S&P index over the same period.

Heck. Some data might be useful.

[utrecht]

I suspect that buy and hold will outperform since there will be very long periods where you are out of the market while waiting for VIX to go above 30.

My only point is that if you do whatever you normally do....but then buy SPY (or SSO for more leverage) when VIX goes above 30 (including using margin if so inclined) and then sell when VIX goes below 20....you will increase your profits.

[al_bundy]

Quote:

Originally Posted by utrecht I suspect that buy and hold will outperform since there will be very long periods where you are out of the market while waiting for VIX to go above 30. My only point is that if you do whatever you normally do....but then buy SPY (or SSO for more leverage) when VIX goes above 30 (including using margin if so inclined) and then sell when VIX goes below 20....you will increase your profits.

why do you have to be out of the market? VIX is a good indicator of tops as well and you can use other tools to see if we are close to a top for a few months. most 401k accounts will let you trade once every 30 days, and doing so once every 3-4 months is OK.

[al_bundy]

Quote:

Originally Posted by 2B I'll concede that the VIX is a great measure of market panic. It follows the old rule of buying when there's blood in the street. What you can't predict with the VIX is that when you buy a 30 you won't know that you could have gotten a better deal at 40. I'm sure someone could do a multi year calculation of buy the S&P with the VIX at 30 and sell at 17. Then compare that to a buy and hold of the S&P index over the same period. Heck. Some data might be useful.

haven't had time to learn it myself, but for the last 50 years or so people have been researching using Japaneese candlestick patterns in conjunction with some of the indicators made up here in the USA.

i've read that a lot of people have found that using shorter term indicators like stochastics and looking at candlestick reversal patterns when the stochastics are in overbought or oversold levels gave nice returns, in excess of normal market returns.

Japaneese candlesticks were first invented in Japan to graph rice prices and to find patterns in their rice trading market.

i have 20-30 blogs i read every few days and this has given me much better returns this year than reading all the usual rags or websites

[2B]

Quote:

Originally Posted by al_bundy haven't had time to learn it myself, but for the last 50 years or so people have been researching using Japaneese candlestick patterns in conjunction with some of the indicators made up here in the USA. i've read that a lot of people have found that using shorter term indicators like stochastics and looking at candlestick reversal patterns when the stochastics are in overbought or oversold levels gave nice returns, in excess of normal market returns. Japaneese candlesticks were first invented in Japan to graph rice prices and to find patterns in their rice trading market. i have 20-30 blogs i read every few days and this has given me much better returns this year than reading all the usual rags or websites

I used to be a big technician. I found all the wonderful techniques (including candlesticks) are a great way to sound knowledgeable and financially sophisticated in describing what happened but totally useless to reliably predict future movements.

I've done much better in the buy and hold mode even with the recent drubbing.

[utrecht]

Quote:

Originally Posted by al_bundy why do you have to be out of the market? VIX is a good indicator of tops as well and you can use other tools to see if we are close to a top for a few months. most 401k accounts will let you trade once every 30 days, and doing so once every 3-4 months is OK.

I didnt say I was out of the market. I was responding to 2B who wanted to compare somethng like this:

Buy and hold SP500 from Jan2000-Dec-2007....compared to

Buy SP500 anytime after Jan2000 only when VIX oes over 30 and sell when VIX is less than 20 (or 17..or whatever).

At least thats what I think he meant and if so, the second scenario will have you totally out of the market alot of the time.