Monday, May 3, 2010

VIX and SPX

When the VIX enters the zone above 27 percent it has been shown that it is usually an excellent time to fade both volatility and to go long the market. Unfortunately markets have phenomena which can be referred to as black swan episodes which can throw a wrench into the strategy. An effective method of filtering the opportunity presented by elevated VIX reading is through the use of the RSI.
It appears that the strategy has a greater probability of being successful if the RSI is at or below 30. Implementing the VIX strategy without the RSI filter can trap traders in black swan episodes like the markets experienced between September of 2008 and March 2009--a definitely frightening time to be using the stand alone strategy without a filter.
Currently VIX is at 22.05 and the RSI is at 49.35--in other words time to monitor the markets with patience and discipline if one intends to put the VIX strategy into motion.

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