I wanted to update you on the VIX and provide some recent examples of how sub-19 levels on the VIX have created opportunities. Clearly a low VIX indicates that there is complacency or a lack of volatility in the market. The recent move from February 5th till now has essentially lulled the average bull to sleep and why wouldn't it, the market just goes straight up?!
While the declining VIX could continue driving down, it becomes a much better trade set up to begin betting for a reversal in the market as the VIX goes below 20. Winning trading strategies to take advantage of a market fall could include shorting stocks and ETFs coming up against overhead resistance. Another very simple approach would be to buy the VXX which is a bet that the VIX will actually go higher.
Please click on the chart for clearer detail. I've tried to label areas on the at specific areas where the VIX dropped below 19. I have also labeled the trading level of the SPX with a white horizontal line to provide a reference of the market top for that time period when the VIX was driving to its lows.
The most recent instance on January 19th gave us a VIX reading around 17.20. The SPX did reverse and subsequently provided a drop of almost 100 points (which we've almost made back!).
Personally I will take action when I see an 18.50 intra-day print on the VIX. I have been paring my long positions with the move up and will attempt to reload on the EWZ short trade that I was stopped out of. I also like a purchase of the VXX as an easy way to attempt to catch the increase in "fear".
