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Wednesday, August 15, 2007

NOW WHAT?



It is impossible not to concede that the trend has now turned down. Oddly, the commercials are still heavily long, if we go into a full crash, it would be the first time in history that it has happened when the commercials were positioned like they are. Below, I have a custom indicator based on the VIX index. As you can see, whenever it has hit 100, a major low has been made.



Although this chart only goes back to 2006, all the prior major lows have had this reading. It is at 100 now. As a result, the likelihood of at the very least a good bounce is very high right here. I am waiting for that bounce to then see how things look. If they still look the same with the other things, I will stay long, if they do not, I will sell all my stocks on the bounce. The VIX measures fear, which is why it has historically been a good predictor of lows. The fear is clearly everywhere right now, and rightfully so. It is possible that we have an unprecedented economic event that will spill over into everything.



I do not get involved in investing based on guesses about such things. The above types of things are how I make my decisions. This tells me not to short the market here or sell out here, so I will not. Could we just continue to waterfall, absolutely. Do I think we will, no and the above is why.

2 comments:

superfly19 said...

Hey Chris,

Another good update, thanks.

I have a question about the COT chart. The one I can get free on the internet has a lot of categories for things like E-mini S&P, E-mini NASDAQ 100, etc. What does the E-mini mean? Here are the charts I look at: http://www.timingcharts.com/index.php

Thanks,

Jon

Chris Johnston said...

Emini is the electronic version of the pit contract that is 1/5th of the size. Generally small investors use it so the COT data on it is not as useful. However, recently the readings seem to be about the same. One other comment, the chart posted requires a short term change in the Vix to trigger any buys, meaning it has to close below its midpoint and the opening on the same day. That has not happened yet, so no short term longs for me until then. No telling how far this could go, it is purely news driven and at this point a panic selloff. I am embarassed not to have exited prior to this, but I am far from perfect. Also, my trade is based on longer term fundamentals which have not changed yet.