[color-box color=”blue”]Which one would you rather play; a correction that begins and ends suddenly giving you little time to react, or a nice upward move, that lasts four times as long and gives you ample time to jump in and or out?[/color-box] We are not making this up. Look at the chart below and then look at a chart of the Dow, Russell, NASDAQ or the SPX. After that, you will see clearly that markets bottom when the VIX spikes upwards. Extreme readings in the VIX always correspond to market bottoms. The market either bottoms immediately or shortly after the VIX experiences a massive upward surge.
[color-box color=”red”]Fear is only good if you are in flight or fight situation but the markets are not a fight or flight type situation; the markets are opposite. You do not fight a trend nor do you flee from it. Even when you decide to short the markets, the decision should be done in a calm and collected manner not based on fear or dread. [/color-box]
We have outlined roughly the path we expect the VIX to trace. Note that we view a potential upward spike in the VIX as an opportunity and so should you. History clearly indicates that the VIX always trends downwards after surging upwards. Lower VIX readings are associated with higher market prices.
The trend in the SPX is neutral and when coupled with the extremely high V readings; it confirms the statements we made in Dec of 2015; extreme volatility is here to stay. Always remember that volatility is a two sided equation, and we believe the moves to the upside will be even larger than the moves to the downside
[color-box color=”red”]For the past several months we have stressed that V readings are pointing to much more volatility going forward and that has been the case. The latest reading pushed this index into the all-time new high territory, and as we stated at the beginning of this update, 2016 is going to redefine the meaning of the word volatility. Expect the extreme of extremes everywhere, wild market swings, wild climate swings, unbalanced human behaviour all over the world (sudden surges of violence, followed by equally sudden moments of calm), etc. Throw fear out of the window and understand that this year, you need to treat volatility as you friend. The stronger the deviation/pullback, the better the opportunity and that is what your mantra should be for this year. This outlook will remain valid as long as the trend is up or neutral. Having said that, we will stick our necks out even further and state that we expect the Dow to trade to the 18,800-19,000 ranges in 2016; this view will remain valid unless the trend turns negative. Market update Jan 2, 2016[/color-box]
Unless the trend turns negative, we still adhere to the above viewpoints. Our trend indicator is what we follow and as of now, it is not showing any signs of moving into the sell zone.
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