Lack of "fear" = Sell off ???

Food for thoughts

The VIX is at it's lowest level since 2007 and the DOW is up against the top of a 70 year channel. Dan Greenhaus from BTIG made a nice observation of the VIX . Each time the VIX futures hits 16 % or lower, this is follow by a losing streak in the S&P , see table.

He finishes his commentary with this recommendation for the advisers " This is a good time to remind clients that August and September are not good months historically speaking."

Something to think about



I would suggest that you look at "bars" instead of close-only lines. But what you are looking at is a sign that, at the margin, investors are "selling options". What you may be seeing here or anytime that VIX declines, is that you need to know if it is put-selling or call-selling that is driving down the level of VIX. Low VIX, in and of itself, is not the only way to look at this indicator. Stock owners might be selling calls to generate income and this can be bullish as it shows a wall of worry. If however, margin-buying is heavy and investors are selling puts to generate income, then the market can get vulnerable very fast. You are at least on the right side of the logic, generally. It is also important to look at where the option open interest resides to have an idea where investors are hedged. High open interest levels tend to be important support and resistance. Cheers. Tim West 5:09PM EST, Tues Aug 14, 2012
Algokid timwest
I like how you look at this from a different angle. I will look into this a little bit more, especially at the open option interest. Thanks for your input
timwest Algokid
Option pricing can give you a good idea too. If puts are cheap relative to calls, then investors are selling puts relative to calls, usually bearish. If calls are cheap relative to puts then it is bullish, and quick, sharp price breaks can be purchased with comfort. If you look 3-5 strike price out of the money on each side you can see the pricing (of calls relative to puts) shift over time. It is extremely useful for determining market direction. Cheers.