I went from sad (taking my profits too soon) to glad that I took profits in volatility vehicle VIXY as the VIX reversed and went negative today. It remains to be seen what’s next for volatility in the markets.
We’ve been tracking the divergence in the VIX for the last several weeks in NFTRH’s Sentiment segment. First VIX had simply not been dropping as much (blue dashed) as inverse SPX, forming a divergence. But I wanted to see VIX start to rise to really give us a bearish signal, and so it did. My only real bear position was buying volatility based on that signal.
But it is too soon to tell whether that divergence will have been enough to forecast a real market correction (the thing that went on yesterday and today was a reaction, a reversion to trend).
As such, I added back a few positions on former star holdings that I’d sold earlier in the post-crash relief rally, but which are companies I really like. As with the major indexes, they dropped hard but only to logical support areas, where I gave them a try long.
I guess I don’t have bearish conviction because this could be a replay of the jolt the market took in June, through which I held on to the bullish view. The difference of course is that this time Sentiment had become deplorably over-bullish by readings of newsletter writers (Investor Intel.), investment managers (NAAIM) and general Dumb Money as aggregated by Sentimentrader.
I look forward to digging into the data this weekend to see where things stand in that regard.
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