Friday, August 5, 2011

Friday Links

The VIX has doubled in a month. Victor Niederhoffer wrote that such an increase is a good buy signal.

At the moment, just 28 (5.6%) stocks in the S&P 500 are trading above their 50-day moving averages. This is an extremely low number that was only seen at the lows of the financial crisis and the lows of last year.

Paulson & Company, continues to feel the heat from poor performance. The firm’s most well-known portfolios, the Advantage and Advantage Plus, are down 15 percent and 21.6 percent, respectively, through the end of July, according to two of his investors.

Capital Observer: Improvements To Report.

3 comments:

Jmperry said...

I was curious about Niederhoffer's comments, so I decided to test them using Yahoo finance. Here are all the times I could find where the VIX doubled month over month, along with the market's subsequent performance:

August 6, 1990 - Led to a 2%, 4-day rebound before the market plunged further.

August 14, 1998 - Led to a 4%, 2-day rebound before the market plunged further.

August 31, 1998 - Marked the bottom of the LTCM crash.

September 17, 2001 - Declined several more days before bottoming, leading to huge rebound.

February 4, 2007 - Marked the bottom of the mini-crash.

August 15, 2007 - Marked the bottom of the Northern Rock crash.

September 29, 2008 - Led to a large one-day rebound, but this was followed by the crash.

October 3-10, 2008 - Failed completely, market crashed.

May 6, 2010 - One more down day, then the market bounced 4% over several days before falling further.

May 19, 2010 - Market was flat over the following month, with a substantial interim drawdown.

Jmperry said...

Out of 10 occurrences, there were only two when it failed completely: October 2008 and May 19, 2010. All the others led to either sustained gains or at least a small immediate bounce.

That said, I find the indicator lacking. It seems to say, "Extreme VIX readings will lead to a rebound unless there's a crash," which isn't very helpful.

CP said...

I'm basically expecting a rebound before a continued crash. But, what do I know?

I guess I know that I wouldn't go short here.