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Wednesday, January 16, 2013
STOCK MARKET SELL OFF PREDICTORS
Here is the VIX and the monster decline we have had in it the last couple of weeks. The Vix has been used to call 5000 of the last 10 tops dead on. I hope you get what that means. Like so many other tools there is an art to using them correctly and it is ever evolving. I am pretty sure the best way to use it now will not be the best way 5 years into the future. We have to always be aware that things change and the way people approach things changes as well. This also forces us to change to stay in SYNC, stay CURRENT.
Originally when the VIX gained popularity it was determined that you automatically bought or sold at predetermined static levels. That quickly jumped the shark, it worked for a trade or two. The current thinking is to look at it relative to where it has been and without regard to absolute levels. This can be done a number of ways. I am not going to delve too deeply into how I use it here, that will be done in the Newsletter. However, I want to make one point of what not to do with it. When you see a sharp move in it like we see in the chart above, that is not necessarily a signal to fade the current market direction. What you can never know in a price chart when a retracement begins against a trend, is whether or not it is a continuation buy or the market is reversing.
When you test out buying pullbacks mechanically you can often get really high win loss ratios if you use no stops, in the 90% range, but..... those 10% losers are doozies! If you were you just blindly short the ES when the bands are broken on the down side like this over time you net lose money even though the winning percentage will be close to 60% the way I trade them. As a result, it is not good enough to use in trading. I suggest people study the relationship of the VIX to the ES, there are things to be found that will be helpful in timing the stock market.
I have sell signals in my mechanical system for tomorrow although it remains to be seen if they will be filled since it trades during the pit hours so those orders are not in yet and overnight action can be substantial. I still am somewhat neutral here. If you look at the chart above there are mixed signals all over the place. I tend to think price patterns like this normally get resolved to the up side but nothing is 100%. We are also at about the time where the seasonal tendency to decline starts so perhaps that could be a tie breaker.
The following was taken out of a few articles today that discussed the recent bills submitted to the court in the PFG case. I went into the motions and read them and it was nice to see that of the extra $180,000 on top of these bills that PWC submitted mostly featured conversations by ridiculously valued pinheads talking to people who might buy some of the assets, essentially used car salesman in my mind billing for their time to try and potentially sell things? How many sales people get paid an hourly rate of hundreds an hour to try and sell something? Of course the judge can't strike that down, after all they have raised $1 Million out of the$200 Million that is missing, so they obviously are invaluable!
Meanwhile, bills from lawyers and accountants working to help a court-appointed bankruptcy trustee figure out what remains at the failed brokerage are rolling in.
Price Waterhouse Coopers, one of the world's largest accounting firms, submitted a bill for $1.6 million for about 4,239 hours of work between July 22 and Oct. 31, according to a filing in Peregrine's bankruptcy case on Monday.
PWC continues to provide financial advisory services in the case, documents said.
On Friday, Shaw Fishman Glantz & Towbin, the law firm representing Trustee Ira Bodenstein, submitted a bill for $671,417 for 1,508 hours of work between July 10 and Oct. 31, according to court documents. Good Trading