VIX Contortions

We have had some wild action in the last week and it is reflected in the VIX. I will leave it to the media to tell us why this happened, I have no idea and don't care. What I do care about is what it is telling us now which is SELL. I have written about this before and it is a "noisy" sell signal meaning it does not have a high percentage of accuracy. However, it does have an edge in the market place and therefore I am paying attention to it. Essentially the concept here is decreasing volatility indicates complacency and therefore the markets are vulnerable to set backs.

This sell signal has not worked nearly as well the last 3 years as it did the 10 years prior to that. The reason for this is that the FED is moving the markets much more so than John Q Public. As a result there is complacency and low volume as far as the eye can see. You can't just automatically jump at any complacency sell signal. About 10 years ago this pattern had about a 65% winning percentage just taken straight up with just a few basic rules added to it, NO MAS.You do have to adapt to things as you move along as a trader, things change. However, there sell is a basic edge to this so it is a starting point.

When we look at the next chart we also see a very tight correlation between the seasonal pattern and the price of the ES over the last several months. Almost every wiggle has been right in line with what the seasonal called for. This does happen at times and when it does I pay attention to the seasonal a little bit more.

When we put together the Vix and the seasonal pattern right now it tells me to look for short opportunities from a short term stand point.

Good Trading